China's independent teapot refiners are showing little interest in participating in Russian M100 tenders that are set to be issued in late September or early October, market sources said Thursday.
Only two 40,000 mt cargoes of Russian M100 fuel oil have been fixed to arrive in Shandong province in September to date, totaling less than a third of the 250,000 mt that arrived in August.
ChemChina, the sole buyer of both M100 cargoes, has shown no interest in cargoes for October delivery, according to a source close to the matter.
Other trade sources also doubted there would be any participants in the upcoming Russian M100 tenders that are typically offered by Russia's state oil company Rosneft at end September or early October.
Rosneft last September issued a tender offering up to 2.8 million mt of M100 for delivery over January-December 2015.
Given the lack of demand, sources said September premiums for Russian M100 could drop below $60/mt to Mean of Platts Singapore 180 CST high sulfur fuel oil assessments, CFR. This is down from $110-$113/mt in September 2014.
No teapot refinery has shown any buying interest in the regular monthly VLCC Venezuelan 380 CST fuel oil cargoes imported by state trader ChinaOil since June.
The average run rate at Shandong's teapot refineries has remained low since August, despite refining margins improving slightly, due to stringent safety checks following the Tianjin Port area explosions and a World War II commemoration event on September 3, refinery sources said.
Shandong's teapot refineries were operating at an average rate of 37.9% of capacity over September 3-9, in line with the week before, Beijing-based energy information provider JYD said in a weekly survey of 38 refineries.
Around 13 of the 38 were offline both weeks.
Teapot refineries typically have a capacity of 20,000-100,000 b/d. The total capacity of the sector centered in Shandong is just over 3 million b/d, although utilization typically averages below 40% due to weak margins and limited access to feedstock.
The plants produce mainly gasoil and gasoline for the domestic market.
BITUMEN BLEND DEMAND SEEN TO DIP
Teapot refineries in Shandong, China's main buyers of imported straight- run fuel oil before 2014, have largely switched to using cheaper bitumen blend, which has similar properties to fuel oil.
However, demand for bitumen blend also seems to be weakening in September, with five cargoes fixed and one under negotiation. This compares with around 10 bitumen blend cargoes totaling 1.2 million mt that were fixed into Shandong for August.
Trader Yijia has fixed two cargoes for September, one 120,000 mt and the other 140,000 mt, while Qirun Petrochemical, Wanda Tianhong and Luqing Petrochemical have each taken delivery of a 92,000 mt cargo in the month.
Premiums for September-delivery common grade bitumen blend cargoes without a FORM-E certificate of origin -- which have a density of 0.98-0.99 kg/l, sulfur content of 2-3% and carbon residue of 12-14% -- were around $27-$30/mt to MOPS 380 CST HSFO assessments, CFR, and those with a FORM-E around $3-$5/mt higher. This is down $2-$4/mt from cargoes that arrived in August.
While some teapot refiners are moving to replenish stocks after the recent fall in global crude futures, others remained hesitant due to China's bearish domestic economic outlook.
"It is not easy to sell out bitumen blend, even though refining margins have been slightly better since the fall in international crude prices, as oil product prices have not dropped," a trader said.
The trader said he had sold around 40,000 mt of bitumen blend from port stocks at a premium of $32/mt to MOPS 380 CST HSFO assessment at end August, but still had more stock at port.
Another trader was looking to import a 100,000 mt bitumen blend cargo in September, although this has yet to be fixed due to the current reluctance of buyers to commit to purchases.
Imports of bitumen blend were likely to fall further in coming months as more teapot refineries were granted crude import quotas, sources said.
However, as the main buyers of bitumen blend are the smaller refineries with no access to either domestic or imported crude supplies, demand for bitumen blend is unlikely to fall sharply, sources said.
