China's Shandong customs resume long-suspended bitumen blend clearance

Around 200,000 mt (1.27 million barrels) of bitumen blend have successfully completed custom clearance from bonded warehouse in China's Shandong province since June 16, increasing the possibility of reopening the provincial access for importing the heavy barrels, port and refining sources told S&P Global Commodity Insights June 19.

Divided by three batches, discharging the heavy barrels from the bonded warehouse was a milestone, as seaborne imports of refinery feedstocks declared as bitumen blend have mostly failed to clear the provincial customs since mid-April, prompting some local independent refineries that rely heavily on the material to either cut their throughput or use their precious crude import quotas to bring in feedstocks in Shandong.

Shandong is the home to China's small-sized independent refineries, which consume around 80% of bitumen blend imports in the country.

"It brings hope to independent refineries, lifting the likelihood for them to take back their bitumen blend cargoes home after being detained since April," a market analyst said.

One of the three bitumen blend cargoes was blended from Boscan, a Venezuelan heavy crude with an API of around 10.2 and density above 0.99 kg/cu m, according to sources with knowledge of the matter.

The cargo was discharged in early May at China's Dongjiakou in Shandong and stored in the port's bonded warehouse, the sources said.

"If barrels blended from Boscan meet the clearance requirements for bitumen blend, so should the cargoes blended from other crudes such as Venezuelan Merey and DCO," a port source said.

Chinese customs has stepped up drafting quality standards for bitumen blend since mid-April when four to five cargoes declared as bitumen blend were found to have notably lower densities of about 0.91-0.94 kg/cu m.

Declared under the Harmonized System code 27150000 by independent refineries, bitumen blend refers to bituminous mixtures based on natural or petroleum bitumen or mineral tar or pitch.

According to a draft of standards seen by S&P Global Commodity Insights, customs may require a material declared as bitumen blend to have a penetration index below 400, density to be above 0.95 kg/cu m and to contain over 60% bitumen components.

Market sources widely expected customs to publish the standards in the coming weeks.

May imports rebound

The country's bitumen blend imports rebounded to 237,698 mt in May, jumping 96.7% from a 44-month low of 120,860 mt in April, latest data from General Administration of Customs showed on June 20.

Among the inflows in May, 237,695 mt were imported by companies registered in Shandong, the data showed.

Refining and trading sources told S&P Global that some local customs in other provinces did not suspend clearance, which might allow Shandong companies to bring in bitumen cargoes.

Sources said it was also possible that the May imports included some cargoes declared for that month but were cleared since late last week in June in Shandong.

"As the barrels enter China border and declared to the customs in May, they might be reported as May imports when they were successfully declared in June," a Beijing-based industrial source said.

Chinese customs did not publish its statistics methodology details.

More than 1 mil mt on queue

S&P Global data showed around 1.66 million mt of material declared as bitumen blend has been discharged into storage tanks in Shandong ports since April. Most of those barrels remain in customs clearance process.

Moreover, it is unclear how many of these barrels meet the customs' requirement to be cleared as bitumen blend.

Typical bitumen blend, which had been a mixture of Venezuelan heavy crudes, is a feedstock for producing asphalt for paving roads.

These cargoes can be declared as crude but because the quotas that are required for imports are limited, refineries preferred to report them as bitumen blend.

Although bitumen blend imports attract consumption tax since June 2021, they are allowed to enter China without any quota restrictions.

As refining margin became attractive this year, some independent refineries, which were short of crude import quota or non-quota holders, started declaring their medium or less heavy crude imports as bitumen blend.

As the customs have tightened inspect specifications on every cargo for hazardous chemical imports since April 14, four to five lighter cargoes were found and bitumen blend clearance had been suspended until late last week, market sources said.

Accordingly, a few independent refineries, especially those live on bitumen blend to produce asphalt in Zibo, had cut their throughput due to feedstock shortage.