State-run ChemChina has joined Chinese refining peers in slashing output as the coronavirus epidemic cuts fuel demand, three people with knowledge of the matter said on Thursday, lowering production by around 100,000 barrels per day (bpd).
The cuts by ChemChina, formally known as China National Chemical Corp, take total reductions by refiners in the country, including state majors Sinopec, PetroChina, CNOOC as well as independent plants, to some 1.5 million bpd over just two weeks.
ChemChina switched off the 5 million tonnes per year crude oil unit at Zhenghe refinery in Shandong province on Wednesday, two of the sources said. All of the people with knowledge of the matter declined to be identified because they’re not authorised to speak to the media.
Previously the Zhenghe plant, in Dongying, was operating at 70% of its capacity, the sources said.
The company also reduced operating rates at two other plants in the province – Changyi and Huaxing – to 60% earlier this week from 70% previously. The two plants have a combined crude processing capacity of around 300,000 bpd.
Combined, ChemChina’s throughput cuts are equivalent to 100,000 bpd, according to Reuters’ calculations.
ChemChina did not immediately respond to an email seeking comment.
“As refining crude oil has turned into a loss-making business, (it’s) better to store crude oil instead of refining it,” said one of three sources who has direct knowledge of ChemChina’s refinery operation.
ChemChina has diverted some crude oil cargoes which were supposed to arrive in China to floating storage near Malaysia as well as storing oil in tanks in Shandong, the person said.
Shi Linlin, senior refinery analyst with consultancy JLC Network Technology, said independent plants in Shandong are under tremendous pricing pressure in marketing fuel, especially in the case of gasoline.
Ex-plant gasoline prices have dived by up to 1,000 yuan ($143) per tonne in less than three weeks, or nearly 20%, Shi added. ($1 = 6.9813 Chinese yuan renminbi)
Source: Reuters (Reporting by Chen Aizhu; Editing by Muralikumar Anantharaman and Kenneth Maxwell)