China Sept refinery runs up on peak harvest demand

[HenryTo]

Chinese demand for oil is expected to ramp up again in the near future. More below:
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Friday September 2, 7:07 PM
China Sept refinery runs up on peak harvest demand

SINGAPORE, Sept 2 (Reuters) - Most Chinese refineries are bolstering their throughput in September despite loss-making margins, to feed pent-up domestic demand for fuels and to replenish low supplies ahead of autumn harvesting.
A Reuters survey showed that China's top dozen oil plants are running at 2.3 million barrels day (bpd) in September, up from 2.24 million bpd in August.

Dogged by a fuel supply crunch in the southern manufacturing heartland, refineries buckled under Beijing's pressure to raise their processing rates, or to continue operating flat-out, Chinese industry officials said.

This came despite expectations that refiners might try to cut runs after losing key tax breaks on exported fuels such as gasoline and naphtha.

"Chinese refineries have to increase their runs because of an urgency to help ease the recent fuel shortages. They also need to build oil inventories to meet seasonal demand in autumn harvesting," said CLSA analyst Gordon Kwan in Hong Kong.

There is a heavier use of diesel-fired equipment in the agriculture sector, in which the peak harvesting demand starts from mid-September, Chinese officials said.

China's top plant, Zhenhai Refining & Chemical Co. Ltd. , is keeping September runs steady at 360,000 bpd.

The levels are near Zhenhai's full utilisation rates as it does not have sufficient secondary units to match its primary processing capacity until mid-2006.

Major coastal plant, Gaoqiao, increased crude runs by 5 percent to 209,000 bpd from a low of 199,000 bpd last month, while Qilu refinery kept operations at 214,000 bpd, above its nameplate capacity.

Beijing-based Yanshan refinery also raised operating rates by 6 percent to nearly 170,000 bpd to help secure domestic supply.

Others such as Jinling and Dalian ramped up run rates following routine turnaround.

But a regular maintenance by key coastal plant, Maoming Petrochemical Corp., curbed the increase in overall run rates.

The 270,000-bpd Maoming refinery reduced runs in September by 12 percent from last month to just above 230,000 bpd, due to planned maintenance works at its 50,000-bpd crude distillation and 28,000-bpd gasoline-making units.

The shutdown, which started on Thursday, will last 20-25 days, Chinese officials have said.

DEMAND RECOVERY

The higher throughput reinforced the notion of a recovery in Chinese oil demand, which has been suppressed by constrained domestic supplies, as the refineries' margins slumped into the red due to rocketing global crude benchmarks.

The worst hit were the independent, teapot refineries. Many failed to stay afloat in selling oil products at depressed rates. These small plants were estimated to have supplied 10-15 percent of China's 6.4 million-bpd oil market last year.

But Chinese oil majors, PetroChina and Sinopec Corp. , will proffer a lifeline to their subsidiaries.

"The Chinese refiners (PetroChina and Sinopec) are making money in the upstream and petrochemical sectors. They will channel part of their earnings to offset losses in refining business," Kwan added.

Coupled with drastic cuts in gasoline and diesel exports, the world's second-biggest oil consumer after the United States is expected to see an improvement in implied oil demand, which rose a scant 2.4 percent this year, Reuters calculations based on official data showed.