China's newest refiner Yulong stocks up on Russian oil ahead of startup
China's newest mega refiner Shandong Yulong Petrochemical has stepped up purchases of Russian crude oil cargoes for September arrival ahead of a planned test operation of its new plant, two trading sources said.
Yulong was expected to begin the trial operation at its 400,000-bpd refinery in Yantai city of Shandong province around the end of September, making it China's only major greenfield refinery onstream this year.
The company has since last week bought at least three shipments of Russia's ESPO blend and one cargo of Sokol crude, all for September delivery, several trading sources said.
That would bring the refiner's crude stocks to at least 800,000 metric tons (t) or nearly 6 MMbbl including the firm's earlier purchases, according to traders' estimates.
The startup of the Yulong plant came as smaller independent plants, known as teapots, in the oil refining hub of Shandong province faced weak processing margins with some incurring heavy losses especially in 2Q, traders and analysts have said.
Because of weak demand from Chinese teapots, the main end-users for ESPO oil, discounts for the grade have widened to about $0.90/bbl to ICE Brent for September delivery, from $0.70/bbl last week, traders said. Sokol crude is priced at about $0.50/bbl above ICE Brent for September delivery to China, one of them added.
In April, Yulong received from the central government 8.3 metric MMt of crude oil import quota for 2024, an amount traders said is too large to be finished within the year given there are only three months remaining from the targeted date of startup.
Yulong Petrochemical is 51% owned by private aluminium smelter Nanshan Group, 46.1% by provincial government-backed Shandong Energy Group and the remainder by two local firms.
Shandong, China's third-biggest economy by province, sees Yulong Petrochemical as a cornerstone project that will upscale its fragmented refining sector - made up of some 60 small oil processors - in line with Beijing's broader push to close inefficient plants and build large, competitive manufacturers.
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