October 30, 2015
Bitumen Blend Loosing out to Cheaper Crude Oil But Gaining over straight run Fuel Oil
petroleum bitumen blend and straight-run fuel oil by independent teapot refineries in China's eastern Shandong province was more or less steady this week, despite narrowing refining margins on lower local oil product prices.
But teapot refineries that have recently been granted both import quotas and import licenses for crude oil continued to take in crude cargoes, particularly largest Shandong teapot refiner Dongming Petrochemical.
The 7.5 million mt/year (150,000 b/d) Dongming has received a 240,000-mt cargo shipped from the Gulf of Mexico at Rizhao port early this week, adding to imports of 350,000 mt earlier this month. The latest shipment brings the total volume of crude imported under its import quota of 6 million mt/year to 2.84 million mt.
Adding on to the volume received by four other Shandong teapot refineries with import quotas, teapot refineries have imported a total of around 3.74 million mt of crude since end-July, when Dongming took its first cargo.
The four refineries are: Sinochem Hongrun Petrochemical, Kenli Petrochemical, Yatong Petrochemical and Lihuayi Petrochemical -- better known as Lijin.
For November, the 3.5 million mt/year Yatong Petrochemical is taking in a crude cargo much larger -- possibly a VLCC -- than its first import cargo comprising 60,000 mt of Indonesian Duri crude in mid-October, said a source from the refinery. But details, including the crude grade, of its planned November import could not be ascertained.
Meanwhile, the 3.5 million mt/year Lijin Petrochemical, which is scheduled to restart from an ongoing full turnaround in early November, has not fixed any imported crude cargoes for the coming month so far.
Shandong's teapot refineries are able to crack crude and fuel oil, but they have been using less imported fuel oil since November 2014 because of relatively high procurement costs.
After the government granted teapot refineries access to imported crude, crude has been the top feedstock choice, while bitumen blend is still considered favorable for those that have no access to both domestic and imported crude.
THREE BITUMEN BLEND CARGOES HEARD FIXED FOR NOV SO FAR
Demand for petroleum bitumen blend among Shandong teapot refiners remained thin over the week, with around three cargoes heard so far fixed for November delivery.
This compares with an estimate 530,000 mt of bitumen blend imports, in five cargoes, into Shandong ports in October.
The latest arrival is a 97,000-mt cargo from Malaysia into Rizhao port this week, taken by the 3 million mt/year Yuhuang Petrochemical. The supplier was heard to have resold the cargo to Yuhuang -- which earlier had no plans to buy bitumen blend for October -- after the original buyer decided not to take the cargo.
Still, overall estimated bitumen blend imports in October were lower than September's imports of 1.1 million mt in 12 cargoes.
The fall in bitumen blend imports was attributed to more teapot refineries being allowed to import crude, freeing up domestic crude supply to other refiners and displacing the share of bitumen blend in refiners' feedstock mix as a result.
Adding to this, Shandong customs officials have been scrutinizing imports of bitumen blend more closely since end-September in a bid to identify misrepresented fuel oil cargoes. This has led some teapot refineries to suspend their import activities for the time being.
Premiums of November-delivery common grade bitumen blend cargoes are now heard lower, at around $20-$25/mt to the Mean of Platts Singapore 380 CST high sulfur fuel oil assessments on a CFR basis, from MOPS 380 CST HSFO assessments plus $27-$30/mt, CFR, last heard for October cargoes.
Common grade bitumen blend has a density of 0.98-0.99 kg/l, sulfur content of 2%-3% and carbon residue of 12%-14%.
And in the domestic spot market, bitumen blend prices were heard to have fallen to around Yuan 2,200/mt this week, from Yuan 2,300/mt last week, due to weak buying interest from teapot refiners.
Teapot refineries in Shandong -- China's main buyers of imported straight-run fuel oil before November 2014 -- have largely switched to comparatively cheaper bitumen blend that does not incur consumption tax and import tariffs.
ONE M100 FUEL OIL CARGO FIXED FOR NOVEMBER, POSSIBLY TO SHANDONG
On Russian M100 fuel oil, western trader Mercuria was understood to have chartered the Cap Laurent to load 100,000 mt of M100 fuel oil from Russia's Kozmino this week to northern China, possible to Shandong.
And on Thursday, a 90,000-mt combination cargo of M100 and straight-run fuel oil had arrived at Longkou port. Regular M100 importer Hengyuan Petrochemical was heard as the buyer.
M100 fuel oil cargoes for early November delivery were heard talked at premiums of around $50/mt to MOPS 180 CST fuel oil assessments on a CFR basis, steady from last levels heard for October, but down from premiums of $55/mt for September.
Still, teapot refiners see the latest premium levels as too high, sources said.
Meanwhile, eyes are on Russian state-owned Rosneft's upcoming M100 term supply for loading over January-December 2016.
Rosneft currently has a term contract for 2.8 million mt of M100 for loading over January-December 2015 from Nakhodka or Vanino with Mercuria, at a term premium of around $85-$88/mt to MOPS 180 CST HSFO assessment on a FOB basis.
--Edited by Irene Tang, email@example.com
Singapore (Platts)--29 Oct 2015 723 am EDT/1123 GMT
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