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China fuel oil: Teapot refiners' buying interest remains thin amid low run rates

China fuel oil: Teapot refiners' buying interest remains thin amid low run rates

* Run rates at teapot refiners drop to 34.5% over July 24-30 * New tax system curbs interest for crude, asphalt as feedstock * Domestic 180 CST prices dip on weak shipping demand Weak demand and high inventory of refined oil products restrained teapot refiners' buying interest for feedstock crude, asphalt and fuel oil, said trade sources Thursday. Average run rates at Shandong's teapot refineries in East China fell to 34.5% of capacity over July 24-30, from 36.7% the previous week, Beijing-based energy information provider JYD said in its latest weekly survey of 36 teapot refineries. Three teapot refineries, with a combined crude distillation capacity of 4.5 million mt/year, shut for maintenance over the week, while the 5 million mt/year Kenli refinery restarted its CDU. The total number of CDUs at teapot refineries shut this week is 12, JYD said. "Refining losses widened further due to high inventory of oil products and fall in prices [of products] of around Yuan 50/mt for both gasoline and gasoil. Although teapot refineries now use a big portion of crude as feedstock, they are still making losses," said an analyst with JYD. Buying interest for feedstock crude and asphalt was also thin because a new tax reporting system, effective August 1, will make it difficult for refineries to claim crude or imported asphalt purchases as fuel oil purchases, sources said. The new system requires all value added tax invoices to be encrypted with digital and quick response codes that will be optically machine readable. These codes will contain detailed information about the cargoes, including the identities of buyers and sellers as well as volumes traded. This will make it more difficult to mask asphalt imports or crude purchases as fuel oil, and reduce their competitiveness over fuel oil, sources said. There is no consumption tax imposed on products refined from fuel oil, like gasoline and gasoil, but refiners using crude or asphalt as feedstock still need to pay the consumption tax on refined oil products. Buying interest in 380 CST fuel oil and 280 CST fuel oil has returned over the past weeks as a result, with some teapots starting to purchase small quantities of the cargoes. However, "even if buyers cannot mask their purchases of asphalt or crude as fuel oil to evade the consumption tax levied on their finished products, it's unlikely for all teapot refineries to purchase imported fuel oil as feedstock, as fuel oil is too expensive to source," said a trader. Dragon Aromatics, a petrochemical producer in Southern Fujian province, was heard to have imported some cargoes of Iranian 280 CST straight-run fuel oil in the past months at a premium of around $20/mt to Mean of Platts Singapore 180 CST high sulfur fuel oil assessment. Meanwhile, Zhejiang Meifu, a petrochemical producer in South China, bought a 40,000-mt cargo of Russian M100 fuel oil at $110/mt to MOPS 180 CST HSFO assessment in July, according to a trader at Tianhong New Energy. Tianhong, a regular importer of Russian M100 fuel oil, had sold the cargo to Meifu in Zhejiang. "The petrochemical producers are able to use expensive Russian M100 or Iranian 280 CST fuel oil as feedstock, as they can get refund of the consumption tax, but teapot refineries can not," said the source at Tianhong. Producers of petrochemicals who use fuel oil or naphtha as feedstock, can claim refund of consumption tax levied on their feedstock, as the government seeks to support the petrochemical industry. But trade sources do not expect to see more Russian M100 fuel oil coming into China due to tight supply from Russia. "Blended fuel oil cargoes from Malaysia, however, are still coming in," said another source. Malaysia supplied 396,725 mt of fuel oil to China last month, accounting for about 28.7% of the total. DOMESTIC 180 CST FUEL OIL PRICES SLIDES The price of domestically blended 180 CST bunker fuel continued to fall in South China's Huangpu market this week, as demand from the shipping segment weakened further, trade sources said Thursday. Bunker fuel traders were forced to lower their selling prices in order to attract buying interest from shipowners. Some traders have cut the price to around Yuan 4,300-4,320 ($699)/mt from around Yuan 4,300-4,330/mt last week in a bid to attract some orders from ship owners, but that seemed to be not working. Those traders, in return, lowered their purchasing price of domestically blended 180 CST bunker fuel. "Some already lowered their purchasing prices to around Yuan 4,150-4,190/mt from Yuan 4,190-4,210/mt last week," said a trader source. But in East China's Shanghai market, the price of bunker fuel oil was more or less the same as last week. In Shanghai, domestically blended 180 CST fuel oil was heard sold to ship owners at around Yuan 4,400-4,450/mt this week, unchanged from last week. >>

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