China’s newest mega refiner Shandong Yulong Petrochemical has stepped up purchases of Russian crude oil cargoes for September arrival ahead of a planned test operation of its new plant, two trading sources said.
Yulong was expected to begin thetrial operation at its 400,000 barrels-per-day refinery in Yantai city of Shandong province around theend of September, making it China’s only major greenfield refinery on stream this year, Reuters has reported.
The company has since last week bought at least three shipments of Russia’s ESPO blend and one cargo of Sokol crude, all for September delivery, several trading sources said.
That would bring the refiner’s crude stocks to at least 800,000 metric tons or nearly 6 million barrels including the firm’s earlier purchases, according to traders’ estimates.
Yulong Petrochemical did not immediately respond to emailed requests for comment.
The start-up of the Yulong plant came as smaller independent plants, known as teapots, in the oil refining hub of Shandong province faced weak processing margins with some incurring heavy losses especially in the second quarter, traders and analysts have said.
Because of weak demand from Chinese teapots, the main end-users for ESPO oil, discounts for the grade have widened to about 90 cents a barrel to ICE Brent for September delivery, from 70 cents last week, traders said. Sokol crude is priced at about 50 cents a barrel above ICE Brent for September delivery to China, one of them added.
In April, Yulong received from central government 8.3 million metric tons of crude oil import quota for 2024, an amount traders said is too large to be finished within the year given there are only three months remaining from the targeted date of start-up.
Yulong Petrochemical is 51% owned by private aluminium smelter Nanshan Group, 46.1% by provincial government-backed Shandong Energy Group and the remainder by two local firms.
Shandong, China’s third-biggest economy by province, sees Yulong Petrochemical asa cornerstone project that will upscale its fragmented refining sector – made up of some 60 small oil processors – in line with Beijing’s broader push to close inefficient plants and build large, competitive manufacturers.
Source: Reuters (Reporting by Chen Aizhu; Additional reporting by Florence Tan; Editing by Christopher Cushing and Elaine Hardcastle)