Malaysia is top crude supplier to China's independents in 2022 despite Russian competition

China's independent refineries sourced their biggest crude volumes from Malaysia for the second year in a row in 2022, pushing Russia to take the second spot, despite plentiful availability of discounted cargoes from the non-OPEC supplier; while ESPO crude remained a hot favorite among these refiners.

Shipments from Malaysia rose by a robust 36% on the year to 46.47 million mt, helping the Southeast Asian supplier to retain its top position, although shipping data reflected that a bulk of those volumes may have originated from either Venezuela or Iran.

"A lot of Iranian crudes have been imported as originated from Malaysia, which pushed up the overall imports last year, and this trend is likely to continue in 2023," said Sun Sijia, an analyst with S&P Global Commodity Insights. "This might help Malaysia to retain [its position] as top feedstock supplier and Russia the second biggest."

Flows from Malaysia accounted for 26.8% of total feedstock imports into China's independent sector in 2022, jumping from 16.1% a year earlier. Contributing to that rise was the independent refiners' strong appetite for Mal Blend, a kind of blended crude from Malaysia, inflows of which skyrocketed 813.6% year on year to 16.48 million mt.

Malaysian crudes retained top position in the crude suppliers' list in December, with arrivals at 7.43 million mt, about 28.6% higher from a month earlier.

In December, total arrivals from Iran and Venezuela increased to 7.89 million mt, up 11% from 7.1 million mt in November. This included barrels reported as Bitumen blend, Mal Blend, Singma, Nemina, some Indonesian blended grades, as well as grades from the UAE, S&P Global data showed.

In December, a new blended grade called Mosa was imported from Malaysia, which market sources believe could be a new name for Iranian and Venezuelan cargoes.

Around 136,000 mt arrived in Shandong last month, and was bought by an independent refinery.

The market is also starting to see renewed interest for Brazilian crudes from independent refineries, with volumes in December hitting 522,000 mt, up 30.2% from November, when imports resumed after a four-month hiatus starting July 2022.

"But this week no deals for Tupi were heard to have been finalized in the market, as ESPO is more attractive," a trade source said.

In 2022, overall imports from Brazil fell 67.7% year on year to 4 million mt, an almost similar level of decline in percentage terms as crudes from Angola and Norway.

Middle East volumes

In 2022, crude imports from the UAE, Iraq and Kuwait continued to increase to a combined 39.65 million mt, up 29.1% from a year earlier at 30.7 million mt.

This has more than offset the drop in imports from Saudi Arabia and Oman. Combined imports from these two origins fell 28.5% year on year to 10.8 million mt, from 15.08 million mt a year earlier.

Total imports from these Middle Eastern suppliers amounted to 50 million mt, or 28.9% of total imports, compared with 45.8 million mt, or a 25.8% share a year earlier.

Middle Eastern imports are likely to gain a bigger market share in 2023, with the complete startup of the 800,000 b/d Zhejiang Petroleum & Chemical, as well as the start of commercial operations at the 320,000 b/d greenfield refining complex Shenghong Petrochemical, trade sources said. These new refining complexes, which are designed to crack crudes from Saudi Arabia, will need more crude in 2023 as opposed to 2022.

Market outlook

With Lunar New Year around the corner, demand for crude feedstock has started to weaken.

"The market has been a bit quiet this week, with few trades being heard," a trade source said.

Deals for February-arrival ESPO cargoes, were heard done at discounts of around $6-$7/b against ICE Brent Futures on a DES Shandong basis, which were lower by about 50 cents/b compared with the first week of January, market sources said.

Meanwhile, there were also some January-arrival cargoes offered in the market, at discounts of around $8/b, on the same basis, slightly lower from a week earlier, due mainly to the weak demand.

The Lunar New Year holiday falls over Jan. 21-27 this year, and typically market activity thins a week before and after that period.

In December, around 2.6 million mt of ESPO crude arrived at Shandong ports, up 36.6% from November. This came despite the G7 price cap being in place since Dec. 5, suggesting that the flow of the grade into Shandong market was not affected.

ESPO crude is one of China's independent refineries' most favored crude, with overall arrivals increasing 6.3% year on year to 25 million mt, or 502,054 b/d, in 2022, according to S&P Global data.

Top feedstock suppliers for China's independent refiners (000 MT)

Top feedstock imports for China's independent refiners (000 MT)

*Including imports from other countries, and other grades

Source: S&P Global Commodity Insights