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China data: Shandong independent refiners raise Aug run rates to 59% on better margins

Highlights

September run rates to hold around 60% of capacity

Refining margins improve

August feedstock consumption rises 10% on month

Singapore — China's independent refineries in Shandong province have raised their run rates to around 59% of capacity in August, from a 19-month low of 52.5% in July, according to a monthly report from local information provider JLC.

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The higher run rates in August can mainly be attributed to less maintenance, as refineries that had shut in July had gradually restarted throughout August.

A combined capacity of around 18.7 million mt/year across seven independent refineries had restarted throughout August, according to JLC. This compares with an offline capacity of 43.7 million mt/year from 13 independent refineries in July.

JLC's survey covered 43 independent refineries, accounting for about 58% of the country's total independent refinery capacity. JLC is a Beijing-based information provider, formerly known as JYD.

Four refineries with a total capacity of 13.8 million mt/year had suspended operations mid-August for around a week, when a typhoon hit the Shandong region, impacting the overall run rate. These refineries are Zhenghe Petrochemical, Shengxing Petrochemical, Qicheng Petrochemical and Yongxin Petrochemical.

Looking into September, eight refineries with a combined capacity of 23 million mt/year will be restarting from maintenance, which will support the run rates, despite a few refineries still planning to shutdown for maintenance.

The run rates are likely to stay around 60% of capacity in September, according to JLC.

PRODUCT STOCKS DOWN TO A 21-MONTH LOW

Following the higher run rates, the output of oil products at the Shandong refineries increased 3.5% month on month to around 5.67 million mt in August.

But oil product stocks in the province dropped 28.6% from July to a 21-month low of around 730,000 mt, amid improving demand.

Gasoline stocks had dropped by about 31.1% month on month, and gasoil 27%.

"There is quite a lot of replenishment buying, as some are expecting demand to pick up from September," a JLC analyst said.

Usually, gasoil demand from the fishing and agricultural sectors, and construction projects, will increase from September, so retail stations need to prepare for that.

Refining margins also strengthened last month. The refining margin for cracking imported Oman crude has increased by around Yuan 51 ($7)/mt to Yuan 233/mt theoretically, according to JLC.

FEEDSTOCK CONSUMPTION RISES 10% ON MONTH

The surveyed 43 refineries have consumed a total of 8.05 million mt of feedstock in August, up 10% on the month from a 11-month low in July.

All the feedstock consumed last month was crude oil, with imported feedstock accounting for about 90% of the total -- a record high.

In comparison with the increasing imported feedstock volume, the consumption of domestic offshore crude grades and onshore Shengli crude continues to fall.

The consumption of Venezuelan Merey crude also remains low, given a drop in production. Independent refineries have been trying to import other crude grades, like Cold Lake from Canada, as well as Kuwaiti crude to replace Merey for producing asphalt.

Among all the imported feedstocks, ESPO crude from Russia remains the favorite with around 1.47 million mt consumed in August, up 13.3% on the month.

Brazil's Lula crude came in second with around 1.12 million mt cracked last month, down 8.6% on the month. Both ESPO and Lula are crude grades with good yields of gasoil -- the main product produced by independent refineries.

PORT STOCKS DOWN TO A 13-MONTH LOW

Feedstock inventories at major ports in Shandong fell to 4.03 million mt as of August 30, down 14% from end-July, according to JLC.

It was also the lowest level in 13 months, down 26% from the record high of 5.42 million mt end-June.

Major ports in Shandong are Qingdao, Dongjiakou, Longkou, Laizhou, Rizhao, Dongying and Yantai.

Despite low port stocks, the expected crude arrivals at ports in Shandong and Tianjin for independent refineries in September, are likely to be around 7.3 million mt.

--Staff, newsdesk@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com