Chinese local refineries processed 111.08 million tons of crude oil in the first half of the year
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From January to June 2021, China’s local refineries processed 111.088 million tons of crude oil, a 14.1% increase compared with the previous year. Of this, the processing volume in the second quarter was 54.371 million tons, a 3.9% decrease on a year-on-year basis. In the first quarter of this year, driven by factors such as a significant rebound in the operating rates of local refineries and improved refining profits, processing volumes rose sharply on a quarter-on-quarter basis compared to the same period last year. However, entering the second quarter, local refineries entered a peak period of maintenance, leading to a decline in operating rates and the arrival of raw materials, which in turn caused the overall processing volume to drop as well. It should also be noted that due to the concentrated maintenance activities of refineries from April to June, local refineries became less inclined to purchase raw materials; as a result, the volume of crude oil shipments arriving at ports in the second quarter was lower than in the same period last year. Additionally, policy measures aimed at verifying the crude oil quotas of local refineries further weakened the trading atmosphere in the forward crude oil spot market. Especially in May and June, the taxation on diluted bitumen, combined with a 34.6% reduction in the import quotas for the second batch of crude oil under the non-state trade system, along with various safety and environmental inspections ahead of the centenary celebration of the Party’s founding, all contributed to negative growth in the processing volume of crude oil by Chinese local refineries during the second quarter. Entering July, the operating rate of local refineries in China dropped below 70% once again. Even with the boost provided by the \"Golden September and Silver October\" period, the shortage in raw material supply meant that there would still be a lack of support for crude oil processing by these local refineries in the third quarter.
From January to June 2021, the average operating rate of atmospheric and vacuum distillation units in China’s local refineries was 76.08%, up 4.3 percentage points on a year-on-year basis. Specifically, in the first quarter, international crude oil prices remained strong, which drove up the prices of refined products produced by local refineries. This boosted the enthusiasm of these local refineries for crude oil processing. Thanks to the improving profits from refining, the operating rates of China’s local refineries stayed at high levels. However, entering the second quarter, as the peak season for maintenance work at local refineries arrived, approximately 12 such refineries with a combined capacity of around 35 million tons for atmospheric and vacuum distillation stopped operating one after another, leading to a decline in the operating rate of China’s local refineries. Furthermore, although local refineries resumed operations following the maintenance work in early June, leading to a rebound in their operational rates, international crude oil prices surged in July, resulting in a sharp increase in cost pressures. At the same time, demand for refined products remained weak, which reduced refining profits and dampened the enthusiasm of local refineries to carry out processing activities. Meanwhile, **a series of inspections were carried out on local refineries regarding their facilities, the flow of imported crude oil, and tax matters; various policy measures were implemented. With ongoing shortages in crude oil quotas and audits related to the consumption tax on downstream products, many local refineries were forced to reduce their production volumes. According to JLC, the operating rate of China’s local refineries for atmospheric and vacuum distillation is likely to drop to around 65-67% in July. Although the third quarter is typically a peak period for demand, tighter policies this year have suppressed both raw material supply and the profits on finished products, making it unlikely that the operating rates of these local refineries will see a significant increase. Additionally, the third batch of import quotas for crude oil for this year is likely to be allocated in the fourth quarter. Given the uncertainty surrounding the amount allocated, JLC predicts that local refineries may still experience an increase in production cuts and shutdowns during that quarter.
In the first quarter of this year, driven by factors such as a significant rebound in the operating rates of local refineries and improved refining profits, processing volumes rose sharply on a quarter-on-quarter basis compared to the same period last year.
There were too many influencing factors in the first quarter of last year, resulting in poor comparability; refineries operated independently faced significant pressure from larger companies in the refining market
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