China fuel oil: Thin fuel oil spot supply sustains teapot refiners' asphalt buying


Teapot refineries in eastern China's Shandong province continue to purchase asphalt as a supplement feedstock due to limited spot availability of fuel oil, while high premiums for Russian M100 grade have prompted some buyers to look to other fuel oil grades, trade sources said Thursday.

One 100,000-mt asphalt cargo is scheduled to arrive late this week into Shandong, bringing to total 300,000 mt of asphalt imports in August to date.

"There are very few fuel oil cargoes coming into Shandong," a Singapore-based fuel oil trader said.

The current low spot availability of fuel oil into China was mainly attributed to a tightness in M100 supply due to higher domestic bunker demand and maintenance at domestic refineries.

So far, just 10,000 mt of M100 was heard fixed for August into Shandong.

Meanwhile, a 40,000-mt cargo of M100 was scheduled for August 18-19 delivery into East China. This cargo was earlier bought by Tianhong New Energy -- a regular importer of M100 fuel oil -- at a premium of $120/mt to Mean of Platts Singapore 180 CST high sulfur fuel oil assessment on a CFR basis.

"The cargo [arriving around August 18-19] was not [re-]sold to Shandong teapot refiners ... Those teapot refineries are asking for cargoes for September delivery," said a trader at the company.

And premiums for September-delivery cargoes are expected to remain above $110/mt, given continuous tightness from Russia, the source said, adding that the company has been buying just one 40,000-mt cargo each month, down from two or three cargoes early this year.

Other than supplies being limited, teapot refineries also see premiums of M100 as too high, curbing trade activities of the grade. "I don't think any teapot refinery will be willing to buy M100 at around Yuan 6,000 ($976)/mt, which is too expensive," said a source with the 5 million mt/year (100,000 b/d) Lijin Petrochemical refinery.

If teapot refineries need feedstock for fluid catalytic cracking units, they can purchase vacuum gasoil, where "good quality" supply can be bought at around Yuan 6,200-6,300/mt, the source added.

M100 is usually blended with crude to be fed into the CDUs and then further processed in FCCs.

Meanwhile, the East China spot market has seen a revival in buying interest for other fuel oil grades, such as the relatively cheap Venezuelan 380 CST straight-run fuel oil, this week. State-owned trader Chinaoil will import one 280,000-mt cargo of Venezuelan 380 CST straight-run fuel oil in the first half of September, according to a source with the company.

"We've received some inquiries asking for 380 CST fuel oil in September, but has not finalized the volumes," said the source.

For smaller size cargoes, traded levels were around MOPS 380 CST HSFO assessments plus $14-15/mt, he added.

The company sold a small portion of about 30,000-50,000 mt from its 280,000-mt cargo that arrived this week to teapot refineries. In contrast, it did not sell any fuel oil in June and July. Still, the source said teapot refiners would rather buy asphalt "which is much cheaper but of almost the same quality."

Imported asphalt cargoes were heard at around Yuan 4,300-4,500/mt in the spot market in Shandong -- much cheaper compared with other feedstocks such as 380 CST fuel oil or M100, sources said.

"The refining margins are getting thinner for teapot refineries amid the continuous drop [in] oil product [prices] in the domestic market, so those refineries still prefer to purchase asphalt," said the analyst with JYD.

Teapot refineries had processed 435,000 mt of asphalt in July, 7.4% more than 405,000 mt in June and also the highest monthly figure to date, while fuel oil consumption was just 163,000 mt in July.

Average run rates at Shandong's teapot refineries in East China fell to 31.6% of capacity over August 7-13, from 34.3% the previous week, Beijing-based energy information provider JYD said in its latest weekly survey of 36 teapot refineries.

ChemChina's 5 million mt/year affiliated Zhenghe refinery was shut over the week, knocking out daily run crude runs of 10,000 mt.

The total number of CDUs at teapot refineries shut this week is 13, one more than last week, JYD said.

"It's expected that the government will further lower the price of oil products soon, so it's getting difficult for refiners to sell oil products, and inventories are building up," said the analyst.

Domestic 180 CST fuel oil prices fall further

Price of domestically blended 180 CST bunker fuel continued to fall slightly over the week in South China's Huangpu market, following the price cut of asphalt -- a main blending material for 180 CST fuel oil, sources said Thursday.

Asphalt from Sinopec's Guangzhou refinery in southern Guangdong was heard cut by Yuan 30/mt to Yuan 4,150/mt this week, sources said.

"Fuel oil blenders are buying less asphalt for blending, as fuel oil demand from the shipping segment has remained weak," said a trader source.

Deals were mainly heard done for small cargoes of around 200-300 mt in size at around Yuan 4,170-4,180/mt, but some buyers were looking at below Yuan 4,150/mt.

In East China's Shanghai market, the price of bunker fuel oil fell slightly to Yuan 4,270-4,300/mt, from Yuan 4,300-4,330/mt last week.

"The demand is weak in general, and some blenders start to quote low to attract buying interest from ship-owners," said a Shanghai-based fuel oil trader.

Source from : Platts