Teapot refineries in eastern China’s Shandong province have continued buying fuel oil as an alternative feedstock following recent steep falls in the product’s benchmark outright prices, while imports of cheaper alternative feedstock asphalt remains steady, sources said Thursday, October 16.

One 90,000-mt cargo of European origin 180 CST straight-run fuel oil is expected to arrive at Shandong port late this week.

The cargo was bought by Luqing Petrochemical at a premium of around $100/mt to the Mean of Platts Singapore 180 CST high sulfur fuel oil assessment on a CFR basis, sources said.

“We only import fuel oil when the price is relatively lower as it is still expensive compared with crudes,” said a source with Luqing, which had imported two similar fuel oil cargoes in September.

While demand for feedstock fuel oil and asphalt was relatively steady among teapot refiners, overall run rates are unlikely to rise in the short term as the continuous fall in international crude prices has led to lower oil product prices in the domestic market, making refineries hesitant to raise throughput levels, sources said.

Run rates at Shandong’s teapot refineries fell to 36.3% capacity over October 9-15, down 4.2 percentage points from the previous week, Beijing-based energy information provider JYD said in a weekly survey of 36 teapot refineries.

The 7 million mt/year (140,000 b/d) Huaxing Petrochemical has shut all its crude distillation units this week for a one-month maintenance, bringing the total number of CDUs shut to 10.

Meanwhile, Russian Rosneft was heard to have awarded its tender offering up to 2.8 million mt of the straight-run 180 CST fuel oil M100 for January-December 2015 loading from Nakhodka or Vanino to a Singapore-based trading company, which has been exporting M100 to China quite regularly, according to market sources.

This could not be directly confirmed.

Last year, Rosneft’s sole term buyer BP has committed around 2.2 million mt, out of its term volume of 5 million mt, of M100 to Shandong-based Tianhong Energy over November 2013-December 2014.

A company source at Tianhong said the company has imported about 1 million mt of M100 so far this year.

While award details of the term tender could not be ascertained, sources at independent teapot refineries believed not many domestic refiners would be interested in purchasing M100 if the landed price into Shandong is above $110/mt to MOPS 180 CST HSFO assessments.

“Generally only five to six teapot refineries have been buying fuel oil as a feedstock now, and most of them prefer to purchase cheaper cargoes from Europe,” said the Luqing source.

Meanwhile, teapot refiners have maintained the pace of their asphalt buying into October.

Three cargoes, each 90,000-100,000 mt in size, have arrived at Shandong ports this October — almost the same as September,according to trade sources.

“The premium of asphalt against MOPS 380 CST HSFO, is around $15/mt in Shandong market,” said a trader source.

The company took in one 90,000-mt asphalt cargo into Longkou port recently, and resold the cargo to Kenli Petrochemical.

Another cargo, which arrived in early October, was heard imported by Yuhuang Petrochemical, while the third cargo was co-purchased by Qicheng Petrochemical and Shengxing Petrochemical.

Demand for asphalt cargoes has been relatively stable, as it was still a good supplement feedstock to crudes, sources said.

The import cost of an October-arrival asphalt cargo was around Yuan 4,100-4,200 ($668-684)/mt, down sharply from Yuan 4,300-4,400/mt in late September.

DOMESTIC FUEL OIL PRICES STABLE

In South China’s Huangpu market, prices for domestically blended 180 CST bunker fuel were around Yuan 4,120-4,150/mt, broadly unchanged from last week, even as demand remains weak amid lackluster shipping orders, sources said Thursday.

“Fuel oil market sentiment has been quite low, affected by the plummeting crude prices, while demand is also weak,” said a trader source.

The company has not been able to sell any fuel oil cargoes in October, as it did not receive any orders from the shipping segment over the past week.

And with margins being thin, some fuel oil blenders were reluctant to blend more 180 CST bunker fuel.

In East China’s Shanghai market, bunker fuel prices were more or less stable from a week ago, at around Yuan 4,200-4,250/mt, according to sources.