Sinochem shuts Shandong refineries 'indefinitely' on poor margins
State-run Sinochem Group has shut in two of its three east China oil refineries for an indefinite period of maintenance, as high crude oil costs and weak fuel demand hurt margins, according to trading sources and local consultancies.
The closures, roughly 2% of China's national output, highlight a tough business climate for the country's smaller oil processors this year as demand in the world's second-largest consumer stumbles in a sluggish economy that is dampening its demand for crude oil.
Sinochem closed its Zhenghe and Changyi refineries in May and June, respectively, for indefinite overhaul periods because of poor margins, said the sources.
The shutdown at the 100,000-bpd crude unit at Zhenghe started in early May, while Changyi's 160,000-bpd plant was switched off around June 25, according to two trading sources and Shandong-based consultancy Oilchem.
"There is no timeline for production resumption, for now," said one trading source with direct knowledge of the matter.
"The more they process, the bigger loss they would likely incur," said a second Beijing-based source familiar with Sinochem's refinery operations.
Utilization at independent refineries in the processing hub of Shandong province, a bellwether for Chinese oil demand, fell to 50.08% this week, according to Chinese consultancy Oilchem, among the lowest in the past four years.
Sinochem's Shandong plants also face higher crude oil costs than their independent peers, known as "teapots," which rely on crude from Russia, Iran and Venezuela that is priced at deep discounts due to Western sanctions, saving Chinese refiners billions of dollars.
Sinochem, like China's national oil majors, has shied away from buying oil from those three countries, senior trading sources familiar with Sinochem's thinking have said.
Sinochem operates a third refinery in Shandong, the 120,000-bpd Huaxing plant, as well as a refinery complex in the southeastern coastal province of Fujian.
Reflecting weak Chinese demand, crude oil imports into the world's top buyer posted a rare 2.3% annual decline during the first half of this year, weighed down by lackluster demand for fuel, especially diesel.
Comments