China's teapot refineries ordered to cut runs as port readies for summit

DONGYING, China (Reuters) - At least five independent refineries in Shandong, China’s northern province, have been ordered to cut operating rates as Beijing aims for blue skies for a regional summit in port city Qingdao next month, sources at the companies said.

The instructions come as Qingdao prepares to host the Shanghai Cooperation Organization (SCO) summit on June 9-10. China typically takes such steps ahead of major political gatherings to ensure they proceed with clear air and without any accidents that could disrupt events.

The cuts range between 30 percent and 50 percent of the plants’ capacities, removing about 45,000 barrels per day of processing capacity from the market, according to Reuters calculations.

That’s a fraction of the 1.9 million bpd that independent refiners, known as teapots, imported in April.

But the measures are the latest setback for teapots as they struggle with shrinking profit margins, new tax rules, tighter regulatory scrutiny and greater competition.

The largest company under orders to slash runs is Dongying-based Haike Group, which has reduced production by 30 percent at its two plants since mid-May, a company official directly informed of the matter said.

The company was told by the Dongying safety regulation bureau to keep the curbs in place until mid-June, he said on the sidelines of an industry seminar in Dongying, a hub for teapots. He declined to be identified because he was not authorized to speak with media.

Haike Group has capacity to process 120,000 barrels per day.

Wudi Xinyue Fuel Co, based in Binzhou, received instructions from the city government to cut production in half for the same period, two company executives with direct knowledge of the plan said. The company processes 6,575 bpd.

Rizhao-based Rizhao Lanqiao Petrochemical Co and Dongying-based Qicheng Petrochemical Co were told by their respective city authorities to reduce crude runs by 30 percent for two weeks starting around June 1, executives at the refineries told Reuters.

They each have processing capacity of just under 10,000 bpd.

Dongying-based Yatong Petrochemical Co also received verbal orders from the city government to curb production, but the authorities did not specify the amount or give a timeframe, a company executive said.

Dongying, Rizhao and Binzhou city authorities did not respond to requests for comment.

It’s not clear if other refineries are under similar orders. Widespread cutbacks would likely rattle oil traders, who worry that refinery cuts ahead of the summit could crimp crude demand.

Teapots account for a fifth of China’s monthly crude imports, which hit a record 9.6 million bpd in April.

Qingdao authorities earlier announced plans to ban handling of refined oil products, liquefied petroleum gas and dangerous chemicals in early June.

Reporting by Meng Meng and Chen Aizhu; additional reporting by Beijing newsroom; writing by Josephine Mason; Editing by Manolo Serapio Jr.