China’s refiners set to cut output on weak margins and demand

Singapore — Chinese refiners are expected to reduce fuel output for the rest of the year and maintain lower run rates in the first quarter of 2025 despite a seasonal demand uptick, as profit margins and fuel consumption in road transport remain weak.

The lower refining output in China, which has the world’s largest capacity according to the Statistical Review of World Energy, is expected to cap imports by the world’s top crude buyer, and may tighten domestic fuel supply and support prices.

Consultancy Rystad Energy lowered its forecast for China’s refining throughput to 14.7-million barrels per day (bpd) for the fourth quarter from 15-million bpd previously, after some refiners cut runs amid weak demand, said Ye Lin, its Beijing-based analyst, without naming the refiners.

Vortexa analyst Emma Li expects China’s refining output to fall at least 5% year on year in the fourth quarter and remain flat year on year at 14.7-million bpd in the first three months of 2025.

The country’s refining output declined year on year for a sixth consecutive month in September as refiners struggled with lower domestic fuel sales and government export quotas.

Month on month, throughput fell in April and has held about steady since then.

Demand for transport fuels, which account for about half of the country’s oil consumption, has dropped with China’s broad economic slowdown, rapid growth of electric vehicles and use of cheaper liquefied natural gas replacing diesel as a truck fuel.

Lower throughput is set to slow crude imports with inventories high, Ye said, forecasting imports at 10.66-million bpd in the fourth quarter and 10.64-million bpd in the first quarter of 2025.

That’s down from an average of 10.9-million bpd for the third quarter and 11-million bpd in the first nine months, China’s customs data shows.

Citing weak refining margins, Asia’s largest refiner, Sinopec, last week reported a 52% yearly decline in third quarter net profit, while PetroChina recorded a slight drop in oil processing for the first nine months.

PetroChina shut a 90,000-bpd crude distillation unit (CDU) at its Dalian refinery in October, part of its plan to close the entire plant around mid-2025 and replace it with a smaller facility at another site.

Operating rates at independent refiners, known as teapots, in Shandong province slid to 56% at end-October, a survey of 40 teapots by local information provider JLC shows.

For the first three quarters, operating rates for Shandong teapots averaged 57%, down nine percentage points from the same period a year earlier, JLC said, as profits for processing imported crude plunged 82% to ¥98 ($13.76) per metric tonne.

Teapots are expected to maintain low operating rates due to poor margins and government caps on their crude imports, JLC said in the survey.

Refiners are also under pressure from weak petrochemical margins caused by oversupply.

Reuters