China traditional independent refineries' CDU capacity is expected to peak by 2025 following domestic policies of industry upgrading, outdated capacity elimination, as well as falling consumption of refined oil, per OilChem observation.
Domestic independent refineries' CDU capacity embarked on a course of upgrading since 2017, including the elimination of outdated capacity, integration of small refineries, and transition to chemical production.
It is specifically pointed out in the Catalogue of Industrial Structure Adjustment introduced by China's National Development and Reform Commission that, CDUs with a capacity of less than 10 million tonnes/year will not be approved.
Therefore, it is expected that only two large CDU projects, namely Yulong Refinery and Huajin Petrochemical, will come on stream in the next few years, as the approval has been granted in the previous years. And new projects with overly long planning time are with higher possibilities of an abortion. Only the upgrading of old capacities will go on.
According to OilChem calculation, domestic CDU capacities, including those contributed by state-owned refineries, are expected to see an addition of 55-60 million tonnes in the next five years, during which time over 40 million tonnes capacity will be eliminated.
Apart from policy support, falling consumption of refined oil is among the drivers on the backdrop of carbon reduction and green transition.
As such, the capacity utilization rates of independent refineries' CDUs will fall in order to mitigate the inventory pressure. And feedstock supply will no longer be the core factor restricting the capacity utilization of refineries after the capacities peak by 2025. Instead, the demand side will start to manipulate, potentially accelerating the elimination of small refineries.
It is projected that the CDU capacity utilization rates of refineries with a capacity of over 2 million t/year will range 60-90%, while the smaller ones may withdraw from the market.
Source: OilChem
Nevertheless, the state-owned refineries will play a greater role in balancing domestic supply and demand, hence the independent refineries will see their refined oil production peak lag behind the consumption peak.
Written by Aggie Hu, huchenying@mysteel.com
Edited by Navy Liu, liuchuanjun@mysteel.com