Some independent teapot refiners in China's eastern Shandong province will be ramping up crude oil imports over the next month in a bid to utilize their import quotas before the end of the year, trade sources said this week.
This is despite a slowdown in domestic gasoline and gasoil sales, which dampened teapot refiners' demand for imported crude, petroleum bitumen blend and straight-run fuel oil over this week, as they continue to grapple with rising oil product stocks, according to sources.
No new crude cargoes have arrived at Shandong ports this week, after a string of deliveries last week.
But given a few refineries have only utilized just a small portion of their annual import quotas, the Shandong provincial government has required Lihuayi Petrochemical -- better known as Lijin -- Yatong Petrochemical and Kenli Petrochemical, to import a total 880,000 mt of crude before the end of this year.
Lijin will need to import 200,000 mt next month in order to meet its target.
The refiner, which has a crude import quota of 3.5 million mt/year, received two cargoes totaling 200,000 mt last week and will be returning from an ongoing full turnaround at the end of November.
Yatong will need to import around 600,000 mt of crude before the end of the year.
The refiner last week has received one 50,000-mt cargo of Russian Sokol crude, after taking delivery of its first import cargo of 60,000 mt in October. Yatong has a crude import quota of 2.76 million mt/year.
Kenli Petrochemical will have to import 80,000 mt of crude by the end of this year, according to sources.
The refiner, which has a quota of 2.52 million mt/year, has so far received a total of about 200,000 mt of Russian ESPO blend crude.
Meanwhile, some Omani crude, as well as Brazilian grades, were offered into the spot market on a FOB Qingdao basis, sources said.
With teapot refiners importing crude, the supply of imported crude in the Shandong market has also become abundant.
Some of the teapot refiners unable to fully use up their import crude supply in their own systems were said to be selling part of their cargoes to other teapot refiners which have not been granted import quotas yet.
Shandong's teapot refineries are able to crack crude and fuel oil, but they have been using less imported fuel oil since November 2014 because of relatively high procurement costs.
After the government granted teapot refineries access to imported crude oil, crude has been the top feedstock choice, while bitumen blend is still considered favorable for those that have no access to both domestic and imported crude.
NO NEW BITUMEN BLEND CARGOES THIS WEEK
Imports of petroleum bitumen blend by Shandong teapot refineries have been slow in recent weeks, mainly due to uncertainties over tax issues.
There was talk in the market that the government may levy a consumption tax on bitumen blend, as it has a similar quality to fuel oil. And should this happen, there will probably be fewer buyers for bitumen blend, which is used as feedstock for coking units.
Since the government typically reviews and revises all import and export items at the end of the year, trade sources said they would rather wait for a clear directive before resuming imports.
No new bitumen blend cargoes have arrived for Shandong teapot refineries this week.
Yuhuang Petrochemical and Hengyuan Petrochemical early this month have each taken delivery of a 100,000-mt cargo of bitumen blend at Rizhao and Tianjin. Another two similar cargoes are scheduled to arrive late this month, sources said.
This compares with an estimate 530,000 mt of bitumen blend imports, in five cargoes, into Shandong ports in October, which was lower than September's imports of 1.1 million mt in 12 cargoes.
The steep fall in bitumen blend imports was attributed to more teapot refineries being allowed to import crude, freeing up domestic crude supply to other refiners and displacing the share of bitumen blend in refiners' feedstock mix as a result.
Premiums of November-delivery common grade bitumen blend cargoes were heard at around $20-$25/mt to the Mean of Platts Singapore 380 CST high sulfur fuel oil assessments on a CFR basis.
Common grade bitumen blend has a density of 0.98-0.99 kg/l, sulfur content of 2%-3% and carbon residue of 12%-14%.
Teapot refineries in Shandong -- China's main buyers of imported straight-run fuel oil before November 2014 -- have largely switched to comparatively cheaper bitumen blend that does not incur consumption tax and import tariffs.
ONE RUSSIAN M100 FUEL OIL CARGO ARRIVED FOR TEAPOT
On Russian M100 fuel oil, one 30,000-mt cargo is due to arrive Friday at Rizhao port in Shandong.
The cargo will be taken by Xinhai Petrochemical in Jiangsu province, a subsidiary of Shandong's biggest teapot refiner Dongming Petrochemical. Western trader Mercuria was said to have moved M100 fuel oil cargoes into Shandong this month, though details on the number of cargoes and buyers were not known.
M100 fuel oil cargoes for delivery in early December were heard talked at premiums of around $45/mt to MOPS 180 CST fuel oil assessments on a CFR basis, stable from those delivered in early November.
Meanwhile, despite current thin demand for M100 fuel oil from teapot refineries and petrochemical plants, some Chinese companies are now expected likely to participate in Russian state-owned Rosneft's term tender for 2016.
The tender, offering up to 3.5 million mt of M100 fuel oil for loading over January to December 2016 from Nakhodka or Slavyanka, closes on November 19, and bids will remain valid until December 11.
Rosneft currently has a term contract of up to 2.8 million mt of M100 for loading over January-December 2015 from Nakhodka or Vanino with Mercuria, at a term premium of around $85-$88/mt to MOPS 180 CST HSFO assessment on a FOB basis.
