CHINA DATA: Plentiful quotas propel independents' feedstock imports to 29-month high in Dec

China's independent refiners ended the year on a robust note by boosting feedstock imports nearly 12% year on year in December, making it the highest inflows in 29 months, as buyers rushed to use up the plentiful unused crude import quotas and stockpile cargoes ahead of Lunar New Year holidays.

But inflows could take a breather in January as trading activity might be at a low ebb due to the holiday period.

Data from S&P Global Commodity Insights showed Jan. 9 that Chinese independent refineries' December feedstock imports rose for the third straight month, jumping 11.7% year on year to hit 19.12 million mt (4.52 million b/d), with ESPO remaining as one of the most popular feedstock despite the price cap on Russian crudes coming into effect Dec. 5.

December feedstock import volumes, which includes crude, bitumen blend and fuel oil, also reflected a rise of 12.2% from 17 million mt imported in November.

The combined feedstock import volume was only 3.5% lower from the record high of 19.8 million mt registered in July 2020, when Chinese independent rushed to snap up attractively priced crudes at around $40-$50/b.

Among the feedstocks, crude imports in December reached a 23-month high of 16.52 million mt since January 2021, when it was 16.74 million mt.

Small independent refineries in Shandong lifted their crude imports by 19.5% in December to a 12-month high of 10.76 million mt, becoming the main contributors to the month-on-month increase, S&P Global data showed.

Encouraged to use 2023 quotas earlier

Fifteen refineries in Shandong were granted 10.6 million mt of 2023 crude import quotas in early October and were encouraged to use them in 2022 in a bid to stimulate economic activity.

"With the hefty quota availability, several Shandong independent refineries have lifted throughput in December, as refining margins improved amid expectation of oil demand recovery as COVID-19 movement controls were eased nationwide," an analyst said.

Gasoline sales have gradually improved, with more driving activity helping to lift margins of independent refiners, trading sources said.

Dongming Petrochemical, one of the Shandong refineries, has ramped up imports in December. Total feedstock imports by the refinery increased by about 24.9% month on month to 1.09 million mt in December, making it the fourth-largest importer during the month.

Meanwhile, average crude imports by the three refining complexes -- Hengli Petrochemical (Dalian), Zhejiang Petroleum & Chemical and Shenghong Petrochemical -- have increased at a relatively slower pace of 9.7% month on month.

ESPO inflows intact

ESPO crude arrivals into Shandong ports soared 36.6% from November to a 31-month high of around 2.6 million mt in December. The previous high was 2.66 million mt imported in May 2020.

The increase indicated that the Shandong refineries are relatively confident in bringing in Russian barrels despite the price cap coming into effect.

"In early December, there were some issues around shipping, but then it worked out to be good. So, it's likely that the inflows in January will largely remain unaffected," said a trade source.

February-arrival ESPO cargoes were concluded at a discount of around $5.5-$6.5/b against the ICE Brent Futures, on a DES Shandong basis, according to market sources. This was largely stable from the discount of around $5-$6/b for January arrival cargoes sealed in early December.

The large volume of imports in December took independent refineries' feedstock imports total imports in 2022 to 173.224 million mt, although it was still down 2.3% from 177.24 million mt imported in 2021, S&P Global data showed.

Out of the total feedstock imports, 152.63 million mt of crudes were imported in 2022 by 33 refineries covered by S&P Global, leaving around 32.32 million mt of crude import quotas unused.

Around 31.8%, or 55.1 million mt of the 2022 crude arrivals, were taken by the three integrated mega refineries. The volume was 10% higher than their import levels of 50 million mt in 2021, when they accounted for 28.2% of the independent sector's inflows.

The increase was driven by the startup of a 200,000 b/d CDU at the 800,000 b/d ZPC and the commissioning of the new greenfield 320,000 b/d refinery at Shenghong Petrochemical in early November.

This meant that the feeble appetite of small-sized independent refineries, the swing importers, pulled down overall 2022 feedstock inflows.

Looking ahead into January, port sources said that the expected cargo arrivals at Shandong port would likely to be lightly lower compared with that of December levels.

"Cargo arrivals are expected to be less, especially before around the holiday period," said a source with Yantai port.