Chinese small refineries to post deepest throughput cut as coronavirus spreads

MOSCOW (MRC) -- China's small-scale independent refineries are set to witness their sharpest throughput cut in February as the slowdown in the economy was aggravated by the coronavirus outbreak, refining sources and analysts told S&P Global this week.

"Independent refineries, especially those in Shandong, got hit the hardest this time around, with their utilization rates slashed and operations shut down for some," Kang Wu, head of Platts Analytics Asia, said.
Still, there is a large amount of uncertainty regarding the outbreak and its impact on the Chinese economy.

Globally, the number of confirmed cases has risen to 20,647, with 20,471 of those in China, according to the World Health Organization Tuesday. At least 425 deaths have been attributed to the virus inside China, according to China's National Health Commission.

Initial estimates show Chinese crude runs could be about 1-2 million b/d lower for February than originally expected, according to a Platts Analytics report.

"Independent refineries, except the new mega Hengli (Petrochemical (Dalian) and Zhejiang (Petroleum & Chemical), are estimated to cut throughput by total 700,000 b/d in February. Sinopec and PetroChina are likely to cut about 600,000 b/d and 300,000 b/d, respectively, while the rest to cut 200,000 b/d," a Beijing-based analyst said, adding that he expected China's throughput to drop by 1.8-2 million b/d amid tepid demand.

Independent refiners in Shandong province have also reduced their average run rate by around 17 percentage points from mid-January to 48% this week, and were expected to fall further to around 40%, according to local information provider JLC.

The sector, taking about 25% of China's total refining capacity, borne the heaviest brunt versus independent peers like Hengli and ZPC due to their logistic bottle neck such as land locked transportation and limited storage tanks.

In Shandong, home of the small-scale independent refineries, the government has banned trucks registered in other provinces to ship out products, local refiners said.

In comparison, both the newly built Hengli and ZPC are located in the coast with competitive water-tariff and sufficient storage to maintain runs after their startup last year.

The 400,000 b/d Hengli kept its run rate at 108%, a company source said this week and added they will adjust their throughput, if necessary.

Compared to small-scale independent peers, state-owned refiners generally have less throughput cut as they have oil product export quotas to find outlets in overseas.

Moreover, the state-owned PetroChina will shut its 240,000 b/d Guangxi Petrochemical in southern China February 9 for a 50-day overall maintenance.

The country's only scheduled turnaround in China in February helped PetroChina offset its stock pressure.

As a result, most of PetroChina's refineries only cut their throughput by 2,500 b/d-7,600 b/d.

"Our inventory levels are not too high currently and PetroChina has spare tankers elsewhere," a refining source at PetroChina's Daqing Refining said.

Sinopec, the world's biggest refiner, plans to cut 10% throughput of its total capacity of 5.89 million b/d capacity in February, industrial sources with knowledge said.

Reductions vary at different Sinopec refineries, from about 20,000 b/d-50,000 b/d with the bottom line of 60-70% operation rate.

Its 420,000 b/d Jinling Petrochemical did not only plan to cut throughput but also shut its FCC and gasoline hydrotreater this week for three months as gasoline sales dropped about 70% from normal levels, a source with the refinery said.

The company cut throughput by 21%, or 30,330 b/d, to 113,700 b/d from its original plan in the 160,000 b/d Luoyang Petrochemical in Henan Province, a company source said. Henan is the neighboring province to Hubei, where Wuhan is located.

Sinopec's JV 280,000 b/d Fujian Refining and Petrochemical has cut it run rate to 60% from around 70% in January, which is the lowest run it can bear, a refinery source said.

As MRC wrote before, Sinopec Guangzhou Petrochemical, part of China's petrochemical giant - Sinopec, resumed operations at its cracker on December 5, 2019 following a turnaround. The cracker was shut for maintenance on October 12, 2019. Located in the Guangzhou province of China, the cracker has an ethylene production capacity of 260,000 mt/year and propylene production capacity of 150,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
MRC

MOSCOW (MRC) -- Rigid packaging supplier Silgan Holdings Inc. has acquired Cobra Plastics Inc., an injection molder of plastic closures for a wide variety of consumer products, said Canplastics.

The financial terms of the deal have not been disclosed. Cobra currently operates from two manufacturing facilities located in close proximity to one another in Macedonia, Ohio. The company has a particular focus on injection molding for the aerosol overcap market.

"The acquisition of Cobra Plastics expands the product offering of our global closures franchise into a variety of new markets and applications,” Adam Greenlee, president of Silgan, said in a Feb. 5 statement. “The combination of Cobra’s overcap product line with our aerosol actuators and dispensing systems will allow Silgan to offer a broader range of integrated solutions, including functional overcaps, to meet the unique needs of our customers."

As MRC wrote previously, Russia's output of chemical products dropped by 3.2% in November 2019 month on month. However, production of basic chemicals increased by 3.6% in the first eleven months of 2019, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, the largest increase in production volumes on an annualized basis accounted for mineral fertilizers and polymers in primary form. Last month, 255,000 tonnes of ethylene were produced versus 210,000 tonnes in October; by November, Russian producers had completed all their scheduled works. Thus, 2,721,000 tonnes of this olefin were produced in January-November 2019, up by 0.3% year on year.

Headquartered in Stamford, Conn., Silgan operates 100 manufacturing facilities in North and South America, Europe and Asia. The company supplies metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. Silgan also supplies plastic containers for shelf-stable food and personal care products in North America.
MRC

MOSCOW (MRC) -- A US court decision last week striking down three biofuel waivers that the Environmental Protection Agency gave oil refineries in 2017 has cast doubt on the legitimacy of dozens of other EPA exemptions granted under similar circumstances, reported Reuters with reference to industry experts and agency data.

That spells uncertainty for a handful of independent refiners that secured lucrative waivers from the Trump administration, and could fire up prices for the biofuel blending credits those facilities need to comply with the nation’s biofuel law.

"The potential ramifications are huge," said James Stock, an economist and professor at Harvard University who has researched biofuel policy.

Under the US Renewable Fuel Standard, oil refineries are required to blend billions of gallons of biofuels such as ethanol into their fuel or buy credits from those that do. The EPA can waive those obligations if they prove compliance would cause them financial distress.

The biofuel industry has been incensed by a near quadrupling of waivers granted by the Trump administration, saying it is undermining demand for corn-based ethanol. The oil industry argues the waivers are needed to protect refining jobs, and says the waivers do not affect actual ethanol usage.

The US Court of Appeals for the 10th Circuit on Jan. 24 vacated here three biofuel waivers the EPA granted in 2017 to two small refineries owned by HollyFrontier and one by CVR Energy, which is controlled by Trump ally and billionaire investor Carl Icahn.

According to the court's decisihere the EPA overstepped its authority to grant the waivers because the refineries had not received exemptions in the previous year. The court said the RFS is worded in such a way that any exemption granted to a small refinery after 2010 must take the form of an "extension."

It also noted research showing oil refineries are able to pass the costs of complying with the RFS to consumers by raising fuel prices, suggesting the waivers were not needed to help the oil refineries financially.

Officials at Holly Frontier and CVR were not immediately available to comment. EPA spokesman Michael Abboud said the agency is reviewing the decision.

A coalition of biofuel industry groups had challenged the three exemptions, bringing the suit. Those groups hope the court decision can eventually be applied to other waivers because the issues in question apply more broadly, said Geoff Cooper, president of the Renwable Fuels Association industry group.

According to EPA data here the agency granted seven biofuel waivers in 2015. That number rose to 35 in 2017 - meaning 28 waivers were given without having been given in a previous year. The EPA does not name the refineries that receive the waivers, arguing the information is confidential, but Reuters has reported here that some have gone to small facilities owned by large companies like Exxon Mobil and Chevron Corp.

Harvard’s Stock said the case threatens to hit small oil refineries hard if it means the waivers will be rescinded and they must comply with the RFS.

“All of a sudden there would be vast amounts of past obligations due, combined with the prospect of very limited (waivers) going forward,” he said.

Prices of blending compliance credits, known as Renewable Identification Numbers (RINs), are up about 20% since the court decision to one-month highs.

Ericka Perryman, a spokeswoman for the American Fuel and Petrochemical Manufacturers refining industry group, said AFPM was "carefully reviewing the opinion and potential implications."
MRC

MOSCOW (MRC) -- The upcoming edition of the Chinaplas trade show, one of the world’s largest plastics and rubber trade fairs, has been postponed indefinitely as a result of the deadly coronavirus outbreak, said Canplastics.

Chinaplas 2020 was scheduled for April 21 to 24 at the National Exhibition and Convention Center in Shanghai. The show is being postponed “in accordance with instructions issued by the Shanghai municipality to cease all large-scale activities until further notice,” show organizer Adsale Exhibition Services Ltd said in a Feb. 5 statement.

New dates for the show will be announced at a later time.

"As the show organizer, we sincerely apologize for any inconvenience caused due to the show postponement. Health and safety of all show participants is our top priority; therefore, we have to make this decision,” said Adsale. “Please be assured that we will continue to closely monitor the epidemic situation and keep you well-informed of any further news about Chinaplas 2020."

Chinaplas isn’t the first plastics show to be affected by the month-long coronavirus outbreak, which has now killed 490 people according to the latest figures from China’s National Health Commission. Last week, the upcoming Asiamold 2020 trade show, originally scheduled for Feb. 26-28 at the China Import and Export Fair in Guangzhou, was postponed, as was the co-located Industrial Automation Fair Guangzhou. New dates for those two shows have not yet been announced.

As it was written earlier, supply chain disruption from the clampdowns on the spread of the coronavirus will cause major headaches for chemical producers in the coming days and weeks. China’s polyolefin suppliers have cut their post-holiday production due to logistics restrictions amid authorities’ efforts to contain the coronavirus outbreak. Domestic inventories are high as the plants did not stop production during the Lunar New Year holiday period, which started on 24 January, with most storage warehouses now full.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
MRC

MOSCOW (MRC) -- Economic disruption surrounding the Wuhan coronavirus outbreak will significantly complicate petrochemical markets, not only cutting into demand globally, but also tightening access in China to feedstock and slowing capital projects, reported Chemweek with reference to Dewey Johnson, vice president/base chemicals at IHS Markit.

He estimates that each 1% decline in China's GDP growth this year will translate into about 2.5 million metric tons/year (MMt/y) of lost base chemicals demand.

Measures to contain the virus have brought large parts of China to a standstill, with quarantines forcing residents to stay home and many companies suspending operations until 10 February and beyond. Assuming the economy remains locked down through the end of February, IHS Markit expects GDP growth in mainland China to be 4.2%, down 1.6% from the original forecast of 5.8%. The result could be 4 MMt of lost base chemicals demand.

China has enormous influence over the global petrochemical market. Home to 33% of the world's 750 MMt/y of petrochemical production capacity, it also accounts for 37% of global demand and about half of annual demand growth.

On a net-equivalent basis, China imports over 60 MMt/y of base chemicals, IHS Markit estimates. Of that, about 24 MMt/y is ethylene, mainly as polyethylene (PE) and ethylene glycol (EG); 15 MMt/y is para-xylene or derivative purified terephthalic acid (PTA); 10 MMt/y is methanol; 10 MMt/y is propylene, mainly as polypropylene (PP); and 7 MMt/y is benzene or derivatives cumene, phenol, styrene, and various intermediates and plastics. Any reduction in imports will create a surplus in the rest of the world, putting prices under pressure.

Within China, the petrochemical industry will face an array of additional challenges, says Johnson. One is feedstock supply. With transportation in China severely curtailed, lower fuel demand will drive down crude oil refining rates, reducing the production of key petrochemical feedstock naphtha. Where will petrochemical producers obtain feedstock? One possibility would be to adjust refinery operations to produce a greater proportion of naphtha. Another would be in increase imports of naphtha and other feedstocks such as liquefied petroleum gases (LPGs) and methanol.

Another consideration is the potential mismatch between production and consumption at different points along the supply chain, which could create surges in inventory growth or depletion. A related issue is the potential for rebounding demand during the second half of 2020.

The coronavirus could also affect the pace of capital investment in China. "There's significant amount of capacity being added today in China," Johnson notes. "Labor may be a key bottleneck in this period, and the question is, how does that affect the (engineering, procurement, and construction) schedules and plant start-ups?"

As MRC informed before, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent this year, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
MRC