Small refiners in the Shandong province, home to China’s independent refineries, are restarting operations under new ownership in a move that could exacerbate China’s overcapacity and thin-margin problems.
Three refineries which went bankrupt last year are on track to be revived—one is already operational and talks about the restart of the other two are ongoing, unnamed traders and analysts have told Bloomberg.
Shandong Changyi Petrochemical Co, previously operated by refining and chemicals giant Sinochem, was declared bankrupt last autumn due to slumping refining margins amid tepid fuel demand in China.
Now independent refiner Weifang Hongrun Petrochemical Co has bought Shandong Changyi Petrochemical Co, according to Bloomberg’s sources. The plant resumed operations at the end of last month and is currently processing China-produced crude oil.
Zhenghe Group Co and Shandong Huaxing Petrochemical Group Co, two other refiners who went belly up last year, are in talks with potential buyers, the sources with knowledge of the development have told Bloomberg.
The three resurrected refineries in Shandong are all applying for government quotas to import crude oil, and the total ask from the three plants could be up to 300,000 barrels per day (bpd), Bloomberg’s sources said.
The resurrection of the small refineries in the Shandong province, home to the so-called teapots, the independent refiners, adds to the central government’s headaches in the refining industry. China’s authorities have sought to curb overcapacity in heavy industries including refining and steel-making to prop company profit margins.
However, local authorities in Shandong and other provinces where one industry dominates are strongly supporting the survival of companies as a driver of economic growth.
The province of Shandong, for example, has recently raised the tax rebates for the fuel oil imports of six local refiners, looking to ease the downward pressure on margins and boost economic activity. The Shandong provincial government has increased the consumption tax rebates to which the refiners are entitled for sales of gasoline and diesel refined from imported fuel oil.
By Tsvetana Paraskova for Oilprice.com
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