Commodities
Market Chatter: Chinese Independent Refiners Stave Off Fuel Production in May Amid Declining Margins
Some refiners in China's largest independent refining hub of Shandong have reduced fuel production in May, pressured by a decline in refining margins amid a spike in crude costs, weak domestic demand and excess products, Reuters reported Tuesday.The output reduction is despite a government directive to the small refiners, better known as teapots, to keep production steady to protect domestic supplies following the energy crisis due to the Iran war, the report said, citing trade and refining sources.Average operating rates have dropped to about 50% and are likely to fall further. Last month, operating rates averaged about 55%, the report said, citing an unnamed source.The independent refiners are staring at an estimated loss of 500-600 yuan ($74 to $88) per metric ton of crude processed in the last week of April.China's teapot refineries are the largest purchasers of sanctioned crude from Russia and Iran, which usually are available at a discount to ICE Brent. However, the sanctioned stockpiles are now trading at a premium following the disruption in Middle East supplies amid the effective closure of the Strait of Hormuz waterway, the report said.Most of these independent refiners exhausted their previously procured cheaper stockpiles in April and are preferring to sit on the sidelines rather than purchasing expensive cargoes, the report said, citing sources.has reached out to China National Energy Administration for a comment.(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)