CHINA DATA: Independents' refinery rates subdued on weak margins, low products demand

Utilization rates at China's independent refiners are likely to remain subdued in July amid weak demand for oil products and thin refining margins, industry sources and analysts told S&P Global Commodity Insights.

According to the latest data from local energy information provider JLC, utilization rates fell by one percentage point to around 52% as of July 10, compared with a week earlier.

Average throughput rates in July are largely unchanged from the levels seen in June, the month that saw the lowest utilization rates since March 2020, when the country was hit by the COVID-19 pandemic. Utilization rates were last lower at 43.8% in February 2020, according to JLC data.

"Most independent refineries have been running around their breakeven point for most of the year, due mainly to weak demand for oil products amid thin margins," said an industry source.

In the first half of 2024, average refining margins plunged by 86.1% to Yuan 85 ($11.6)/mt, compared with Yuan 612/mt during the same period a year earlier, and against an average of Yuan 463/mt seen for the whole of 2023, according to JLC data.

Average utilization rate in the first half of 2024 also fell by 10 percentage points year on year to 58%, from 68% a year earlier, JLC data showed.

"Although most refiners have claimed to have suffered losses, we have not come to that crucial moment yet, as independent refineries are still able to maintain operations, even though utilization rates are lower," the industry source said.

Weak demand for oil products

A sluggish housing market, slow construction of infrastructure projects, and growing use of LNG-fueled heavy-duty trucks and electric vehicles have been contributing to lower demand for gasoil.

As a result, independent refiners cut gasoil output for a third consecutive month in June.

Gasoil output at independent refineries fell by 12% month on month to 3.38 million mt in June, a 26-month low, according to JLC data. Gasoline output decreased by 4% on the month to 1.99 million mt last month, the lowest since November 2022.

The output ratio of gasoil vs gasoline, accordingly, also fell to a 16-month low of 1.695:1.

In the first half of 2024, the combined output of gasoline and gasoil fell by 2.9% year on year to 37.4 million mt, but stocks increased by 4.1% year on year, JLC data showed.

Feedstock availability

In the first half of the year, independent refineries processed a combined 1.99 million b/d (49.4 million mt) of feedstocks, down by 4% from the same period a year earlier. Independent refineries processed a combined 28.64 million mt of imported crude in the first half of 2024, down 17.1% compared with a year earlier.

The consumption of fuel oil has almost doubled over the same period.

Around 7.06 million mt of imported fuel oil was cracked in the first half of 2024, up by 99.1% from 3.5 million mt a year earlier, as independent refineries increased fuel oil imports in the first quarter, mainly due to lower costs.

Among imported crudes, the consumption of Malaysian Blend -- which were mostly Iranian crudes -- increased by 61.8% year on year to 11.18 million mt, JLC data showed. Consumption of ESPO stood at 9.44 million mt, falling 34.9% from 14.5 million mt a year earlier due to relatively higher costs.

However, some independent refineries have picked up some attractively-priced Sokol crude cargoes this year, which largely had landed in the March-April period. Overall consumption of Sokol crudes were up 1,524.3% from a year earlier to 1.14 million mt in the first half of the year, according to JLC data.

Imported crudes from Brazil, Angola or the Middle East were mostly cracked by ChemChina's three refineries, having a combined capacity of 20 million mt/year. But due to the relatively higher costs, the refineries have been struggling to make profits, sources said. Its Changyi Petrochemical, which was scheduled to shut for maintenance next year, shut at the end of June for maintenance. Huaxing Petrochemical also has been running at relatively low run rates in recent months, according to market sources.

Note:* Including other crude grades

Source: JLC