China's gasoline demand slows, weighing on independent refineries Feb throughput

China's gasoline demand is slowing as the Lunar New Year travel rush fades, leading independent refineries in the eastern Shandong province to reduce their crude throughput from a three-month high in January with improving refining margins likely preventing further declines, refinery sources and analysts said Feb. 22.

The independent refineries in Shandong, with capacities below 214,000 b/d, are the swing gasoline suppliers in domestic market, reflecting changing demand.

"We saw strong replenishments for gasoline prior to the Lunar New Year until the third day of the holiday, but not much after that," said an independent refinery source in Zibo, adding that the plant will cap throughput to maintain product inventory.

Two refineries with a combined capacity of around 5.2 million mt/year were shut for maintenance throughout the month, which also pulled down overall throughput in February.

The average utilization rate at Shandong independent refineries was 59.4% in the week to Feb. 21, rising about one percentage point on the week, below the monthly average of 63.18% for January, data from local energy information provider JLC showed. JLC's survey covered 39 independent refineries, with a combined capacity of 170.7 million mt/year.

However, improving refining margins would prevent the throughput from falling further from current levels, a Shandong-based analyst said.

Shandong independent refineries' weekly refining margin from processing imported crudes was around Yuan 83/mt ($1.58/b) as of Feb. 21, higher than Yuan 14/mt as of Jan. 31, JLC data showed.

Strong Jan throughput

Shandong independent refineries boosted throughput by 5.8% on the month to 9.14 million mt (2.16 million b/d) in January to meet strong travel demand, JLC data showed. The volume also increased 1.9% year on year.

The independent refineries produced 2.41 million mt (660,000 b/d) of gasoline in January, the highest in six months.

Gasolines sales at Shandong independent refineries hit a two-year high of 2.51 million mt (688,000 b/d) in January, beating a previous high of 2.67 million mt in December 2021, according to JLC data.

Strong ex-refinery sales in January prior to the holidays ensured sufficient supply in the retail market during the Lunar New Year travel rush.

"Road transportation has been the most competitive mode for holiday travel compared with railway and airplane amid limited income in recent years," a Beijing-based analyst said.

Data from PetroChina's Intelligent Operation Center showed that daily refined oil product sales during the Lunar New Year holidays over Feb. 9-17 rose 10%, compared with the holiday period in 2023.

According to the Ministry of Culture, the number of domestic trips over Feb. 10-17 jumped 34.3% compared with the Lunar New Year holidays in 2023, representing a 19% increase from the pre-pandemic level in 2019. Market sources estimated 80% of the domestic trips involved road transportation, boosting gasoline consumption.

Fuel oil, bitumen blend consumption rises

Higher feedstock consumption by Shandong independent refineries in January was mainly contributed by imported fuel oil and bitumen blend, which doesn't require import quotas.

The consumption of the two grades respectively surged 593.1% and 62.8% year on year in January, according to JLC data.

But the refineries' combined crude feedstock consumption was 16% lower at 6.67 million mt in January, with imported crude volumes down 24.4% on the year.

The independent refineries increased the consumption of Malaysian blended crudes as well as Brazilian crudes such as Atapu and Lapa from a year earlier in January. Most of the Brazilian crudes were cracked by ChemChina's refineries, which do not favor Russian crudes.

The independent refineries' consumption of ESPO in January tumbled 54% from a year earlier to 1.37 million mt but was still 7.9% higher from December 2023. ESPO volumes had flooded the independent refinery sector over January-February 2023 as the refineries took advantage of cheap Russian barrels in the wake of a Western price cap on the product following Russia's invasion of Ukraine.

Shandong independent refineries' feedstocks ('000 mt)

Shandong independent refiners' top crude choices ('000 mt)

Source: JLC