China’s Oil Refining Industry Faces Uncertainty Amidst Tariff and Tax Reforms
Independent Refineries Grind to a Halt
Several independent oil refineries in eastern China have suspended operations or plan to do so indefinitely, citing significant losses due to new Chinese tariff and tax policies. This rare move comes at a time when the world’s second-largest oil refining industry is experiencing consolidation, driven by an earlier-than-expected peak in Chinese fuel demand and Beijing’s efforts to eliminate inefficiencies.
The Squeeze on Small Independent Plants
At least four plants, with a combined annual processing capacity of approximately 18 million metric tons or 320,000 barrels per day, have either shut down crude oil distillation units (CDUs) this month or plan to do so in February. These plants, located in the refining hub of Shandong province, include facilities operated by Shandong Shangneng Group, Kelida Petrochemical, Wonfull Petrochemical, and China Overseas Energy Technology (Shandong).
Limited Feedstock Options
These plants do not have government-granted crude import quotas, limiting their feedstock options and making them less competitive than their rivals. Instead, they process straight-run fuel oil or bitumen blend into transportation fuels or asphalt.
New Policy Puts Pressure on Refiners
China’s import tariffs for fuel oil and changes to tax rebates, which came into effect at the start of 2025, have significantly increased feedstock costs for refiners. Under the new tax regime, refiners receive rebates at roughly 50%-80% of the consumption tax paid for feedstock imports, compared to full rebates previously. This has resulted in losses of 300 to 600 yuan per ton for refiners.
Impact on Fuel Oil and Bitumen Blend Markets
The stoppages have led to lower premiums for Russia’s straight-run fuel oil blend M100, which traders last pegged at around $50 per ton over benchmark Singapore 380-cst quotes on a delivered basis. However, prices for bitumen blend have held relatively stable, supported by enquires from plants with crude quota but wary of increasingly costly Iranian or Russian oil due to tighter U.S. sanctions.
Uncertain Future for China’s Oil Refining Industry
As the industry navigates these challenges, it remains to be seen how the independent refineries will adapt to the new policy landscape. One thing is certain – the road ahead will be marked by uncertainty and consolidation in China’s oil refining industry.
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