OREANDA-NEWS. March 20, 2013. The average run rate at teapot refineries in China's Shandong province fell to 41% in February from 44% in January, on refinery turnarounds and weak sales of oil products, Platts calculations, based on surveys done by Beijing-based energy information provider JYD Commodities Hub, showed.

"Buying of refined products was thinner in February due mainly to the Lunar New year holidays as participants left to celebrate the week-long break, dampening market liquidity," a local trader said.

"Besides, local refineries normally shut for maintenance during the period of February-April, which had also affected the run rates," he said.

"Furthermore, the slump in international crude prices in late February discouraged buying interest for refined products, as well as refiners' refining interest," he added.

China's northeastern Shandong province has the highest concentration of teapot refineries -- small independent plants that typically have less than 5 million mt/year (100,000 b/d) capacity and limited secondary processing units.

While some of those local refineries have now either expanded capacity to above 5 million mt/year, or been taken over by the bigger state-owned companies like ChemChina, CNOOC and Sinochem, in order to maintain data continuity, Platts has still kept them in its calculations.

JYD's February and January surveys, made available to Platts, covered 35 independent refineries, which included expanded refineries as well as those integrated into the bigger state-owned companies.

The 35 plants surveyed account for 99.95 million mt/year, or just under 2 million b/d of capacity, which is around 96% of the total teapot refinery capacity in Shandong. Shandong's total teapot refining capacity is around 104 million mt/year, distributed over 57 larger plants and a number of smaller ones, according to JYD estimates.

These refiners can crack domestic crude and fuel oil, but due to limited availability of these feedstocks, rely on imports.

The refineries' products slate comprises mostly gasoil and gasoline, which are sold in the domestic market.

FUEL OIL IMPORTS EXPECTED TO BE LOWER IN FEBRUARY

Owing to their fuel oil consumption, operating rates at the teapot refineries have a direct bearing on Chinese fuel oil imports.

There are several ports in the Shandong province that receive imported fuel oil, but the total import volume data is given by the Qingdao Port, a local trader said. In January, fuel oil imports into various Shandong ports totaled 1.73 million mt, up by 6.8% from December's 1.62 million mt, Qingdao customs data showed.

Shandong's fuel oil imports in February are expected to come in at a slightly lower level from January, amid the lower run rates at refineries and the Lunar New Year holiday, traders said.

The official data for February will be released later this month.

FEBRUARY IMPORTED FUEL OIL CONSUMPTION TOTALS 1.48 MIL MT

The 35 refineries surveyed in February consumed 1.48 million mt of imported fuel oil, which accounts for about 44% of the 3.37 million mt feedstock they processed, according to JYD's survey.

The February imported fuel oil consumption volume was up by 294,000 mt, or 25%, from the 1.18 million mt used in January. But total feedstock consumption in February dropped slightly by 23,000 mt from last month.

Blended 180 CST low sulfur fuel oil was still the main fuel oil grade processed in February. The refineries consumed 740,000 mt of the grade, down slightly from 750,000 mt in January.

Venezuelan straight-run 380 CST fuel oil came in second, with the teapot refineries processing 405,000 mt of the grade in February, up from 238,000 mt in January.

Around 275,000 mt of Russian M100, a straight-run fuel oil with sulfur content of around 1.5%, was consumed in February, up from 177,000 mt in January.

The refineries used 55,000 mt of straight-run 280 CST fuel oil in February, also up from 16,000 mt in January.

REFINING MARGINS FOR M100 IMPROVE IN FEB

Refining margins for processing M100 fuel oil improved in February amid higher retail prices for gasoline, gasoil and other refined products.

The margins improved by Yuan 55 (\\$8.76)/mt, or 7%, from January to minus Yuan 733/mt in February, according to Platts' calculations based on JYD data.

In January the margin was minus Yuan 788/mt.

China's National Development and Reform Commission raised retail diesel and gasoline prices by Yuan 290/mt and Yuan 300/mt, respectively, starting from February 25.

"Although the government hiked oil product prices in late February, traders had started to raise prices for the oil products from early February in expectation of the official rise," another local trader said.

In Shandong, the monthly average prices for 90 RON gasoline, 93 RON gasoline and zero-pour gasoil increased by Yuan 331/mt, Yuan 304/mt and Yuan 65/mt to Yuan 8,511/mt, Yuan 8,605/mt and Yuan 7,751/mt, respectively, in February, according to JYD data.