14 private oil refining factories have got the quotas of more than 50 million tonnes for importing crude oil. And it is expected that the number would continue to increase and reach to 90 million tonnes in this year.

                                                                                                      Source: Internet

With the opening up on the import right on crude oil for the private oil refining factories, the reform of China’s refined oil product market enters into the next phase, and the meager profit era of China’s refining industry is also on its way.

According to Mao Jiaxiang, vice dean of Economy and Technology Research Institute of China Petrochemical Corporation (SINOPEC), with the gradually unloosening of the crude oil import right, the reform of China’s refined oil market marched into the medium-term stage. In 2016, the private refining factories would get more rights on crude oil importing than that of last year. It is expected that the quota of the crude oil importing would range from 70 to 90 million tonnes. And up till now, 10 private refining factories have already submitted application documents and have been waiting for the result of the examination and approval.

Previously, the private refining factories didn’t have the permit to import crude oil, and thus they could only use the high-priced but poor-quality fuel oil as raw material. The refining capacity of China is about 720 million tonnes, among which private refining factories take account of around 35% of the total capacity. Last year, the Commerce Department lifted the restriction on crude oil importing, that is to say, the private enterprises are allowed to import and refine crude oil, and then sell the refined oil products.

At present, 14 private oil refining factories have got the quotas of more than 50 million tonnes for importing crude oil.

Shandong Chambroad Petrochemicals Co., Ltd. (Chambroad Petrochemicals) was the first batch of local refining factories that received the import right of crude oil and the quota of 3.31 million tonnes per year. Recently, Saudi Aramco signed agreement with Chambroad Petrochemicals and sold the latter with 730,000 barrels of crude oil, which has been the first time that Saudi Arabia sold the spot crude oil to China’s private refining companies.

According to Luan Bo, general manager of Chambroad Petrochemicals, the opening up of the import right of crude oil increased the raw materials purchasing channels, which was beneficial for the refining enterprise improving the operating rate and product quality and reducing the cost.

The bulk purchasing of private refining factories on overseas crude oil has directly caused the soar on the import volume of crude oil. According to China customs, China imported crude oil of 32.9 million tonnes in April, with the year-on-year growth of 8.6%. The Qingdao Harbor of Shandong Province has ranked No. 1 in terms of the crude oil import, with the proportion of 30%.

However, the consumption of domestic refined oil has showed a downward trend, which made the problems of the overcapacity in refining industry increasingly prominent.

According to Luan Bo, in China, the excess capacity of oil refining was 100 million tonnes in 2015, and this number will further increase about 90 million tonnes in 2016, and thus the severe situation of buyer’s market for the refining industry has been intensified. According to Mao Jiaxiang, the growth of China’s refined oil product consumption in 2015 fell to the lowest level in the past 20 years, and it further dropped in the first quarter of 2016.

According to Mao Jiaxiang, after acquiring the crude oil import right, the private refining enterprises are expected to increase the profit by the means of improving the production conditions and competitiveness.

With the intensifying of the domestic refined oil market, the refining industry is entering into the era of meager profit. The pattern of domestic refining industry would be diversified, and the market share of PetroChina and Sinopec will continually fall down.

*This article is edited and translated by CCM. The original article comes from Jiemian.com.

About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. 

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