Slumping refining margins amid tepid fuel demand in China have already claimed victims among the refineries in the Shandong province, where two plants operated by chemicals giant Sinochem were declared bankrupt in recent days.
Zhenghe Group Co and Shandong Huaxing Petrochemical Group Co were declared bankrupt after creditors failed to agree on restructuring plans for the refineries, local court statements showed on Tuesday, as carried by Bloomberg.
A third refinery operated by Sinochem in the Shandong province, home to China’s independent refiners, is expected to begin meetings with creditors later this month. This is Shandong Changyi Petrochemical Co, per a separate local court statement cited by Bloomberg.
Most of the processing units at all three plants have been idled for months, due to the plummeting refining margins that have hit the refineries in Shandong especially hard. The three refineries have a combined nameplate capacity to process 300,000 barrels per day (bpd) of crude.
China has seen weaker-than-expected road fuel demand this year, which has prompted a decline in refining margins, leaving many plants in debt.
Underwhelming demand this year has lowered oil refining output as independent Chinese refiners are particularly sensitive to low margins and prefer to reduce refinery throughput when margins and demand are weak.
Refining margins across Asia fell in the first week of September to their lowest level for this time of year since 2020, which could lead to more curbs on run rates at Asian refiners, including in China.
In August, Chinese refiners were estimated to have processed around 12.6 million bpd of crude oil, down by nearly 10% compared to July and 17.5% lower compared to August last year, ING commodities strategists Warren Patterson and Ewa Manthey wrote in a Monday note.
The numbers suggest that apparent oil demand fell below 12.5 million bpd, down by more than 15% year-over-year and to its weakest level since August 2022.
“The numbers also indicate that crude oil inventories in China built at a pace of around 3.2m b/d in August, the largest monthly build in Chinese crude oil inventories going as far back as 2015,” ING’s analysts noted.
By Tsvetana Paraskova for Oilprice.com