MOSCOW (MRC) -- Asia’s largest refiner, Sinopec, is weighing plans to cut oil imports in December and reduce output at its refineries after a surge in global tanker freight rates hit margins, reported Reuters with reference to four sources.
The cost of shipping crude to Asia has surged in the past two weeks after companies stopped using nearly 300 tankers for fear of violating US sanctions against Iran and Venezuela.
Refining margins have yet to catch up with the jump in freight rates, forcing refiners to absorb the costs for now.
"Refineries are facing strong pressure as spot premiums are high and freight rates have jumped, so it’s not economical to import crude," one of the sources said, adding that Sinopec was considering drawing down crude inventories to manage its needs.
A second source said Sinopec was studying whether it could reduce import volumes and see which cargoes from suppliers in the Americas, Europe, Africa and the Middle East it could cut among those due to arrive in China in December.
"The cargoes have been purchased so it’s still unsure whether the volume, especially for long-haul cargoes, can be cut," he said.
"Freight rates have jumped to USD8-USD9 a barrel, up by USD7 a barrel. It’s eaten up a chunk of the (refining) margins," he added.
In a sign the company was already trying to unload some excess supply in the spot market, Sinopec’s trading arm Unipec UK offered four west African crude cargoes last week, but failed to sell them, traders said.
Sinopec declined to comment.
As MRC wrote earlier, in mid-September 2019, SIBUR Holding (SIBUR) and China Petroleum & Chemical Corporation (Sinopec) signed a framework cooperation agreement to produce SEBS (styrene, ethylene and butylene-based block copolymers). SEBS is a pelletised modifier for thermoplastics used to impart elasticity to plastic materials or as a primary polymer to produce elastic components. SEBS boasts excellent durability and is leveraged across a variety of industries such as plastics and bitumen modification, adhesives, modification compounds, and toys. Under the agreement, SIBUR and Sinopec will establish a 50/50 joint venture (JV) in Russia to produce at least 20 ktpa of SEBS.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,436,390 tonnes in the first eight months of 2019, up by 9% year on year. Shipments of all PE grades increased. At the same time, the PP consumption in the Russian market was 909,260 tonnes in January-August 2019, up by 10% year on year. Shipments of PP block copolymer and homopolymer PP increased.
Sinopec Corp. is one of the largest scale integrated energy and chemical company with upstream, midstream and downstream operations. Its principal business includes: exploring, developing, producing and trading crude oil and natural gas; producing, storing, transporting and distributing and marketing petroleum products, petrochemical products, synthetic fiber, fertilizer and other chemical products. Its refining capacity and ethylene capacity rank No.2 and No.4 globally. Sinopec listed in Hong Kong, New York, London and Shanghai in August 2001. Sinopec Group, the parent company of Sinopec Corp., is ranked the 5th in Fortune Global 500 in 2012.