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China's independent refiners get import quotas close to annual ceiling

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China's independent refiners get import quotas close to annual ceiling

Highlights


First round allocation up 76.6% on year

Most refiners get allocations of at least 90% of ceiling

ChemChina's allocation hits new high

China's independent refineries have received their first round of crude import allocations with volumes close to their annual ceiling, a move that will allow them to better pace their imports through the year and bring more efficiency to their crude buying.

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The Ministry of Commerce on Wednesday allocated a total 114.59 million mt (2.3 million b/d) of crude imports to 34 refiners, up 76.6% from 64.88 million mt for 21 refiners awarded in the same batch of 2017, a document available to S&P Global Platts showed.

In addition to the 34 independent refineries, 10 trading companies -- nine state-owned and one independent -- have received quotas of around 6.73 million mt.

The trading companies' imports will be mostly sold to the state-owned oil giants Sinopec, PetroChina, CNOOC and Sinochem.



The total quota allocation of 121.32 million mt (2.44 million b/d) is up 87% compared with 68.81 million mt allocated in the first 2017 round.

The import allocation to 15 independent refiners has already hit 100% of the quota ceiling set by the National Development and Reform Commission, while 17 have crossed 90% of the ceiling, the document showed.

"The high allocation in the first round will enable refineries to plan their imports more efficiently in 2018, instead of worrying about the quota shortage all the time," said an independent refinery source in Shandong.

China's top economic planner NDRC sets the maximum annual volume that an independent refiner can import, while the ministry issues quotas for the actual volume that a refiner is allowed to import in a year.

The ministry has said that the quota allocation for the first batch of a subsequent year will be based on a refiner's total imports over January-October in the current year, while the second batch allocation will be based on a refiner's actual import in the first half and its projected demand for the second half.


TIGHT 2017 ALLOCATIONS


The tight allocation in the first round in 2017 had pushed refineries to import as much as possible in the first half of the year to secure enough quota for the second half. Imports by the sector hit a record high 10 million mt in March this year.

The current allocation suggests that the volume for the second round will be around 15% of the total ceiling volume for the independent refineries, at around 21.1 million mt.

The second round import quota allocation is expected at end June.

Most refineries have used up their quotas this year, which explains why they have received a high portion of their yearly quota in the first batch for 2018, a source from Chambroad Petrochemical said.

"The latest allocation suggests that the government is trying to give out all the quotas reserved for a refinery, which is good for the refinery but [supply side] competition between refineries will become more fierce in 2018," said a source with Beifang Asphalt Fuel.

China's independent refiners imported 85.37 million mt over the first 11 months of 2017, up 66% year on year, according to Platts estimates.

This accounts for around 22% of China's total crude imports of 385.9 million mt in the same period, according to Platts calculations.


CHEMCHINA'S ALLOCATION HIGHER THAN 2017


ChemChina, the state owned chemical giant that owns independent refineries in Shandong that are allowed to process imported crudes, has received a total of around 16.67 million mt of quota allocation in the first batch for 2018, 6.7% higher than its total allocation in 2017.

"The total quota allocated in 2017 was not enough, so we applied for more," a source with ChemChina said.

The company used all its allocated 2017 crude import volume and had to supplement that with straight-run fuel oil and domestic offshore crude.

ChemChina was granted a crude import quota for 10 million mt/year by NDRC at the end of 2012 and started importing crude oil in 2013.

Unlike the later quota recipients who have been importing crude since 2015, ChemChina's quota allocation does not require it to phase out capacity, build LNG storage or meet any other specific condition.

Therefore, there seems to be no cap on the quota to meet its throughput plan.

ChemChina received a total quota of 10.72 million mt in the first batch for 2017, which was increased to 15.62 million mt in the second batch.

ChemChina has seven refineries with a total capacity of 25 million mt/year, of which only three were originally approved to process imported crude -- the 8 million mt/year Changyi Petrochemical, 7 million mt/year Huaxing Petrochemical and 5 million mt/year Zhenghe Petrochemical plants in eastern Shandong province. All seven refineries can now process imported crudes.

China's first round of crude oil import quotas for refineries in 2018: Unit: 000,000 mt

Notes:

*Baota's ceiling quota has been lowered from 6.16 million mt/year to 2.16 million in September.
^Received approval for importing crude oil after the first batch allocation in 2017
~ChemChina's import quotas has no ceiling and is increasing in recent 2 years.

--Analysis by Daisy Xu, newsdesk@spglobal.com
--Oceana Zhou, oceana.zhou@spglobal.com
--Edited by Wendy Wells, wendy.wells@spglobal.com