Singapore—Average utilization rates at China's independent refiners surged to an all-time high in March, as attractive margins and rising product sales whetted the appetite of some refiners to tweak their product slate, while others deferred maintenance plans to take advantage of a market that offered a window for robust earnings.
Crude runs in March climbed to as high as 81.9%, surpassing the previous record of 79.3% in February this year by 2.6 percentage points, data from JLC showed, sending a strong indication that demand is on a steady upward trend.This would bring relief to a market that had seen crude runs at independent refiners plunging to as low as 55.1% in March 2020 when COVID-19 started taking a toll. But with many refiners planning to go offline in April, analysts said run rates in April would likely come down from record highs.
"Margins should strengthen on the back of tighter gasoil balances as we head into the spring season, as this is when demand for the fuel picks up from both the agriculture and construction sectors," said Grace Lee, senior China oil analyst at S&P Global Platts Analytics.
"Meanwhile, overall maintenance is looking heavier than expected, particularly in May when outages will rise by 90,000 b/d year on year, which will limit supply. The increase in turnarounds will be contributed by both the state refiners and independents alike and that should put a cap on processing volumes of both groups of refineries," she added.
Independent refiners have been quite flexible in adjusting run rates. Following higher crude prices in the international market, oil product prices in the domestic market have maintained an upward trend, which had helped to improve sales and encourage refiners to raise run rates.
Refining margins for cracking imported crude has strengthened further in March to Yuan 139/mt ($20/mt) -- the highest in the first quarter. It was up by Yuan 123/mt from February, according to JLC.
Because of the higher margins, some refiners lifted crude throughput and a few postponed maintenance further. The 2.2 million mt/year Kelida Petrochemical, which had planned to shut for maintenance in March, deferred plans and only decided to shut down its units on April 1.
In April, a total of 21.2 million mt/year refining capacity has been planned to shut down at seven Shandong independent refineries. This will probably trim the run rates from a record high of 81.9% in March, to around 70%, according to an analyst with JLC.
Insatiable appetite for feedstockOverall feedstock consumption at the surveyed refineries -- comprising of various grades of crude and bitumen blend -- had climbed to a record high of 11.6 million mt, or 2.74 million b/d, in March, up 14.5% from the February level of 2.65 million b/d, and from 2.48 million b/d in January. On a year-on-year basis, it was up 44% from March 2020 when total consumption was just 1.9 million b/d.
With heavy maintenance planned in April, feedstock demand is likely to drop, which in turn would pull down cargo arrivals to relatively lower levels, compared with March volumes.
In addition, total crude feedstock inventories at major ports in Shandong increased by 11.1% from Feb. 25 to 5.79 million mt -- a 27-month high -- as of March 25. The incremental volume mostly came from Rizhao and Longkou ports. But it has since come down to around 5.52 million mt as of April 1, according to JLC.
More crude cargoes got discharged over the month due to easing port congestions as well as because of high demand for feedstock. The major ports include Qingdao, Dongjiakou, Rizhao, Yantai, Dongying, Laizhou and Longkou.
In the crude feedstock portfolio of independent refiners, crudes from the Middle East maintained strong momentum, with Oman taking the third position to replace Johan Sverdrup, and Upper Zakum taking the fourth place. ESPO and Tupi were the top two while Johan Sverdrup slid to the fifth position.
In the whole of Q1, total consumption of Oman and Upper Zakum amounted to 3.03 million mt, up 55% on the year. Industry sources said some Iranian grades may have also flowed into the market.
In March, there were about 14 cargoes totaling 2.15 million mt imported for the independent sector -- which were reported as Malaysian Nemina, bitumen blend, Oman and Upper Zakum, according to data intelligence firm Kpler and market sources.
Top 10 crudes cracked by Shandong independent refineries in March 2021 (Unit: '000 mt)
