Home > Chemical News

Chemical News

China fuel oil: Consumption tax hikes erode demand from refiners

https://www.chemnet.com   Mar 06,2015 Platts
Teapot refiners in China's Shandong Province are increasingly turning to using petroleum bitumen blend as feedstock following a series of hikes in the consumption tax on imported fuel oil -- the feedstock of choice for these refiners earlier, trade and market sources said this week.

"The high consumption tax has weakened the [demand] for imported fuel oil as feedstock from teapots," said a trader source.

Following three hikes since November 2014, the consumption tax on imported fuel oil has increased by around 50%.

The trader source is offering M100 fuel oil at a premium of around $88/mt to Mean of Platts Singapore 180 CST high sulfur fuel oil assessments for March delivery, but has not received not any buying inquiries yet.

Some sources said offers for M100 fuel oil had dropped to around MOPS 180 CST HSFO assessments plus $80/mt, amid lack of buying interest.

In the spot market, a Fujian-based trading company was offering a 30,000-mt cargo of M100 fuel oil, stored in bonded tankers at Yantai port in Shandong, at a premium of around $100/mt to MOPS 180 CST HSFO assessments, on a CFR basis this week.

"Few teapot refineries are interested in purchasing fuel oil, so we intend to sell to petrochemical producers instead," said a company source.

The company has fixed another similar cargo for end-March or early April delivery at a premium of around $100/mt to MOPS 180 CST HSFO assessment and is still negotiating with the potential buyers.

But petrochemical producers were also not keen to buy fuel oil cargoes now as they were waiting for prices to fall further.

Zhongjin Petrochemical in eastern Zhejiang province had received a cargo of around 100,000-mt of fuel oil in January and was not in a hurry to purchase more fuel oil cargoes for the time being.

"With more teapot refineries being granted import quotas for crude, we expect the price of fuel oil to fall in line with the weakening demand from the refineries," said a source from the company.

The plant, which has installed a 2.6 million mt/year vacuum distillation unit that processes fuel oil, expects to start it up around end-April.

For March, one 30,000-mt cargo of Russian M100 cargo is expected to arrive in East China at the end of the month.

A total of 560,000 mt of Venezuelan 380 CST fuel oil is also due to arrive in March.

State-owned trader ChinaOil has fixed two 280,000-mt cargoes of Venezuelan 380 CST straight-run fuel oil for March delivery into East China.

The first cargo arrived at Qingdao port this week and has been sold to bonded bunker trading companies.

While a small part of a second cargo, which is due to arrive in the second half, will be sold to teapot refineries, according to a company source.

For February, ChinaOil sold 180,000 mt out of a 280,000-mt cargo it brought in, at a premium of around $16-$18/mt to MOPS 380 CST HSFO assessments on a CFR Shandong basis.

Huifeng Petrochemical and the 5 million mt/year Rizhao-based Lanqiao Petrochemical were the buyers.

In addition, Weifang-based Luqing Petrochemical, which was a regular buyer of fuel oil in the second half of 2014, is due to receive a 100,000-mt fuel oil cargo of European origin this month.

The cargo was heard bought at a premium of around $60-$70/mt to MOPS 180 CST HSFO assessment, said a company source.

Imported straight-run fuel oil like Russian M100 or Venezuelan straight-run 380 CST HSFO were favored by the independent teapot refineries before 2013, with fuel oil comprising 40-50% of their feedstock mix.

Unlike state-owned oil companies, teapot refineries are mostly independent and have relatively small capacities ranging from 20,000 b/d to 100,000 b/d.

They are seen as relatively inefficient and unsophisticated compared with their state-owned peers.

The teapot refineries, 80% of which are located in Shandong, account for roughly a quarter of the country's overall refining capacity.

MARCH BITUMEN PREMIUMS BROADLY UNCHANGED

Demand for petroleum bitumen blend, which has properties similar to fuel oil but higher asphaltene content, has remained strong as it does not have any consumption tax, sources said.

Around five cargoes, each 90,000 mt to 100,000 mt in size, of bitumen blend was heard to have arrive this week at Shandong ports, said sources.

These include one cargo imported by Qingdao-based trading company Yijia, at a premium of around $35-$40/mt to MOPS 380 CST HSFO assessment, said a company source.

"Demand for bitumen blend has been relatively strong compared with fuel oil," the source added.

The company imported a total of around 210,000 mt of bitumen blend in two cargoes in February.

Meanwhile, four teapot refineries have imported a total of around 400,000 mt of bitumen blend for March.

These are the Weifang-based 5 million mt/year Luqing Petrochemical, 3 million mt/year Yuhuang Petrochemical, Dezhou-based 1.5 million mt/year Hengyuan Petrochemical, and Dongying-based 2 million mt/year Hualong Petrochemical.

Premiums for the cargoes range around $35-$40/mt to MOPS 380 CST HSFO assessment, CFR Shandong basis, similar to levels for February delivery cargoes.

The cargo Yuhuang Petrochemical has fixed was heard to be at a slightly higher premium of around $42/mt.
 Print  |    add to Favorites  |    Close