Holiday driving, cooling demand prompt China's independent refineries to boost runs

China's independent refiners are set to push their runs even higher in July, extending the trend seen in June when throughput rose to five-month highs, as strong driving demand during the holiday season and increased appetite for cooling provide a robust earning opportunity.

In addition, a fall in domestic product prices is also expected to lift demand, prompting refiners to ensure that they keep most of their units running in the month. Only one refinery will remain offline in July, sources said.

"Run rates will likely hover above 70% for most time of the month," an analyst in Shandong said.

Data from local energy information provider JLC showed that the average utilization rate at Shandong independent refineries recovered to around 68.9% in June, a five-month high. It was up by eight percentage points from May.

With the summer holiday season kicking off and many families planning to drive around during vacation, demand for gasoline is expected to be supported. In addition, higher temperatures during the summer season also boosted demand for air-conditioning, raising expectations that more gasoline will be burned in the foreseeable future, sources said.

"Falling oil product prices could also lend support to demand as it gets a bit cheaper to drive around," the analyst added.

On July 12, oil product prices were lowered for a second straight time, by Yuan 345-360/mt ($51.30-$53.50/mt), according to the National Development Reform & Commission. This will help to ease the driving cost to some extent at a time when overall economic activity is expected to remain subdued.

Also, not many refineries have plans to shut for maintenance, meaning run rates will largely remain supported, unless refining margins worsen, forcing refiners to cut throughput.

The 800,000 b/d Hualian Petrochemical is the only refinery offline in Shandong. It has been shut since June 30 and no restart date has been fixed yet.

In the first week of July, the average utilization rate at Shandong independent refineries recovered to around 68.9%, up from 63.3% seen in the first week of June. This was mainly due to improving refining margins, sources said.

ZPC, Hengli throughput

Crude throughput at the two integrated refining complexes -- Hengli Petrochemical (Dalian) Refinery and Zhejiang Petroleum & Chemical -- will likely come under pressure in future months due to maintenance.

Hengli shut one of its 200,000 b/d crude distillation units for maintenance from July 10, which trimmed its crude throughput by about half. ZPC has been maintaining relatively stable run rates at three of its four 200,000 b/d CDUs in early July, more or less stable from last month.

In June, the combined crude throughput at the two refining complexes was at around 835,620 b/d, down by 3% from May, according to JLC.

This was due mainly to lower crude throughput at Hengli, which cut its daily throughput by about 10% month on month from May. ZPC's throughput was more or less stable month on month.

Robust runs in June

Feedstock consumption -- comprising of crude, bitumen blend and fuel oil -- at Shandong's independent refineries rebounded to a five-month high of 9 million mt, or 2.2 million b/d, in June, amid recovering demand and improving refining margins.

The volume in June recovered by 10% from May, which rebounded from a 26-month low in April, ending a fall of three-straight months, JLC data showed.

However, overall feedstock consumption in June was still about 14.4% lower from the same period a year earlier.

Six refineries with a combined capacity of 448,000 b/d -- including Changyi Petrochemical, Jincheng Petrochemical, Shangneng Petrochemical and Haiyou Petrochemical -- have gradually restarted from maintenance, which supported the throughputs in June.

Overall feedstock consumption at Shandong independent refiners, as per JLC's survey, covers 40 independent refineries in Shandong, with a combined capacity of 3.18 million b/d and accounting for about 17% of China's total refining capacity.

On the other hand, overall feedstock inventories at ports were down by 8.5% at 6.74 million mt, or 49.4 million barrels as of June 30. It was a seven-month low, indicating refineries were running on port stocks last month, JLC's data showed.

Shandong-based independent refiners received 18.2% less feedstock in June at 45.15 million barrels, compared with May shipments, according to S&P Global data.

Shandong independent refineries' crude feedstocks ( '000 mt)

Shandong independent refineries' oil product output, sales ( '000 mt)

Shandong independent refineries' top crude feedstocks ( '000 mt)

Source: JLC