Average Run Rate at 'Teapot' Refineries Dropped to 36.5% in April From 42% in March

The average run rate at "teapot" refineries in China's Shandong province dropped to 36.5% in April from 42% in March, due to slow sales of oil products, according to data from Beijing-based energy information provider JYD Commodities Hub.

ChemChina's 7 million mt/year (140,575 b/d) Huaxing Petrochemical and 1.4 million mt/year Anbang Petrochemical all cut their run rates on sluggish demand for oil products, said an analyst from JYD. The average operation rate of teapots refineries was pulled down to some extent.

The 12 million mt/year Dongming Petrochemical refinery also lowered its crude runs by 16.7% to 78,187 b/d in April from 93,871 b/d in March, according to JYD.

Besides, some refineries that shut for maintenance have postponed their restarts, he added.

The 1.6 million mt/year Hualian Petrochemical plant, shut for maintenance from March 25, the restart of which has been postponed to May from late April.

In addition, the new oil pricing system, in place since late March, has resulted in less hoarding of oil products, and teapot refineries find it difficult to sell as a result, sources said.

Previously, traders preferred to purchase a bulk volume of gasoil and gasoline when a price hike was imminent and sell off before a price cut. But now they have been squeezing the buying volume drastically because the price will be set every 10 days, said a local trader.

China's northeastern Shandong province has the highest concentration of teapot refineries -- small independently owned plants that typically have less than 5 million mt/year of capacity and limited secondary processing units.

While some of these refineries have now either expanded their capacity to more than 5 million mt/year, or been taken over by larger state-owned companies like ChemChina, CNOOC and Sinochem, they have been included in the data to maintain continuity.

JYD's April and March surveys, made available to Platts, covered 35 refineries, which included expanded refineries as well as those integrated into larger state-owned companies.

The 35 plants surveyed account for 99.95 million mt/year of capacity, or just under 2 million b/d, which is around 96% of the total refinery capacity in Shandong, according to JYD estimates.

These refineries can crack domestic crude and fuel oil, but tend to rely on imports due to limited availability of these feedstocks. The refineries' product slate comprises mostly gasoil and gasoline, which are sold on the domestic market.

APR IMPORTED FUEL OIL CONSUMPTION TOTALS 1.43 MIL MT

The 35 refineries surveyed in April consumed 1.43 million mt of imported fuel oil, which accounted for about 47% of the 3.05 million mt of feedstock they processed last month, according to JYD's survey.

The refineries' average fuel oil consumption was 350,374 b/d in April, down 8% from 380,687 b/d in March.

Blended 180 CST low sulfur fuel oil remained the top fuel oil grade processed in April. The refineries consumed 171,278 b/d of the grade, down 21.5% from 218,717 b/d in March.

Venezuelan straight-run 380 CST fuel oil came in second, with teapot refineries consuming 99,444 b/d in April, down from 120,354 b/d in March.

About 53,998 b/d of Russian M100, a straight-run fuel oil with a sulfur content of around 1.5%, was consumed in April, down 79% from 41,142 b/d in March.

The refineries used 105,000 mt of straight-run 280 CST fuel oil in April, compared with zero in March.

REFINING MARGINS FOR M100 IMPROVES SLIGHTLY IN APR

Refining margins for processing M100 -- essentially 180 CST LSFO rose slightly in April due to a drop in the price of feedstock and lower refining products prices.

The refining margin rose by Yuan 144/mt ($23.23/mt), or 18%, to minus Yuan 669/mt in April from minus Yuan 813/mt March.

The fall in feedstock prices was larger than that of oil products, resulting in higher margins, said another local trader.

The average price of spot M100 fell to Yuan 6,024/mt in April, down by Yuan 245/mt or 2.4%, from Yuan 6,269/mt in March.

In April, the average price of 90 RON gasoline, 93 RON gasoline and zero-pour gasoil decreased by Yuan 214/mt, Yuan 199/mt and Yuan 129/mt to Yuan 8,126/mt, Yuan 8,256/mt and Yuan 7,682/mt, respectively, in the Shandong market, compared with March, according to JYD data.

FUEL OIL IMPORTS INTO SHANDONG TO REBOUND IN APR

Due to the large share of fuel oil in the teapot refineries' feedstock mix, operating rates at the plants have a direct bearing on China's fuel oil imports.

According to data by China's General Administration of Customs, fuel oil imports into Qingdao Port -- in Shandong province -- totaled 1.19 million mt, or 290,757 b/d in March, up by 5.1% from 275,648 b/d in February.

There are several ports in Shandong province that receive imported fuel oil Qingdao, Rizhao, Longkou and Laizhou -- but the total import volume for the province is compiled by Qingdao Port for customs authorities.

Shandong's fuel oil imports in April are expected to come in at a lightly higher level from March despite of the big drop in run rate, since a lot of cargoes were booked in April, sources said.

The Mean of Platts Singapore 180 CST HSFO assessments averaged around $614/mt in April, down by about $20 from $635/mt in March, which prompted a lot of buying interest from teapot refineries, said the analyst from JYD.