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China Raises Crude Import Quotas Amid Falling Refining Margins

China’s Ministry of Commerce (MOFCOM) has issued this year’s second-batch quotas for non-state crude imports, permitting 56.85 million mt of import, according to a notice from the MOFCOM.

The quotas surged 377% from 11.91 million mt for the same batch in 2018.

The MOFCOM has thus released permits for a total of 153.10 million mt of non-state crude import so far this year, including the supplementary quotas for 4.31 million mt of import for the first batch, a modest increase of 1.21% from the total quotas for 2018.

Hengli Petrochemical obtained permits for 12.80 million mt of crude import under the second-batch quotas, while Zhejiang Petrochemical was not listed. Hengli is raising its refinery operating rate and its monthly crude import has exceeded one million mt, industry sources said. Zhejiang Petrochemical has started up only one 200,000 bbl/day crude distillation unit and has not achieved a full production line yet, but it is still possible for the MOFCOM to grant permits to Zhejiang Petrochemical later this year.

Conventional independent refiners (excluding ChemChina’s subsidiaries, Fuhaichuang Petrochemical/Dragon Aromatics (Zhangzhou) and new refining-chemical complexes) have got quotas for 100.31 million mt of non-state crude import under the two batches of quotas for 2019, a drop of 3.18 million mt or 3.07% year on year, JLC data shows. Meanwhile, the quotas for ChemChina shrank by nearly 20% to 14.82 million mt. All this indicates increasing negative impacts on conventional private refiners as new refining-chemical projects come on stream, and the government’s policy preference for traditional refiners has come to an end.

Traditional independent refiners have recorded low operating rates and shrinking refining margins year-to-date, and new refiners such as Hengli and Zhejiang Petrochemical will make major inroads into these traditional refiners’ markets. As the market becomes increasingly oversupplied, traditional refiners are in great need of upgrades, and only some of them will survive in the future.

As more refiners eye a larger role in the petrochemical sector and more related government policies come out, the country will see increasing integration of independent refiners, more relocation to industrial parks, more extensions to the chemical sector and increasing refining capacity for a single refinery.

By JLC International

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