Brimming oil tanks forcing China’s teapots to cut losses
May 25 2019 11:10 PM
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Vehicles creep slowly through heavy traffic in downtown Beijing (file). The problems facing the teapots are also being felt by processors across Asia as they struggle with rising oil prices but lower demand for fuel, a situation that the rapidly escalating trade war is threatening to make worse. Chinese refiners, however, are particularly hard hit as rising tariffs mean it will be too expensive for them to buy American crude.

Bloomberg / Beijing/Singapore

Oil tanks along China’s eastern seaboard are filling up as the effects of the trade war trickle down into the real economy and sap demand for fuels, making life tough for the country’s independent refiners.
In Shandong province – home to many of the non-state refineries known as teapots – gasoline stockpiles have swelled to the highest ever in data going back to 2011. The glut means domestic prices for fuels sold by teapots have risen only about 5% this year, failing to keep up with the surge in global oil prices, said Gao Jian, an oil analyst at Zhao Jin Futures. 
The Shandong refiners are losing about $8 on average for every barrel of oil they process, he said.
The vanishing margins are forcing refiners to cut run rates or keep plants idled to mitigate the losses. Their woes have also been compounded by the start-up of mega-refineries at Dalian and Zhejiang, as well as a central government plan to streamline exports, resulting in the teapots not receiving any quotas to sell fuel overseas since 2017.
“Almost every teapot refinery based in Shandong is making a loss,” the Zibo-based Gao said in an interview. “It’s all because of very sluggish downstream demand, especially on the gasoline side.”
Independent refineries account for about a third of China’s processing capacity. The relatively small fuel producers burst onto the scene a few years ago, receiving government permission to buy foreign crude for the first time and helping push the country past the US to become the world’s biggest oil importer.
The problems facing the teapots are also being felt by processors across Asia as they struggle with rising oil prices but lower demand for fuel, a situation that the rapidly escalating trade war is threatening to make worse. Chinese refiners, however, are particularly hard hit as rising tariffs mean it will be too expensive for them to buy American crude.
To cope with the situation, three Shandong teapots with a combined capacity to refine crude 180,000 barrels of crude a day have cut run rates by 10% to 20% in May, said Jean Zou, an oil analyst at ICIS-China in Guangzhou. Stricter environmental checks on some of the plants – which had previously bore the brunt of President Xi Jinping’s efforts to tackle pollution – have also contributed to the slowdown in operations at these units, she said.
Other refiners including Shandong Haiyou Petrochemical Group, Shandong Shtar Science & Technology Petrochemical Co and Shandong Haihua Co have delayed the restart of plants after planned maintenance work in April and May, according to data from industry consultant SCI99. Shandong Binhua Binyang Gas & Chemical Co. shut its 20,000 barrel a day crude unit on March 27 without providing a definitive date for the restart, the SCI99 data show.



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