* Over 5 mln bbls of fuel oil booked over past several weeks
* Purchases spurred by crude quota shortage, bitumen blend
SINGAPORE, June 11 (Reuters) - China's independent
refineries are snapping up fuel oil, resuming imports after a
nearly five-year hiatus, as Beijing's crackdown on crude oil
quota trading along with new fuel taxes limit refinery feedstock
Five companies, including four refineries based in Shandong
province and one local trader, booked 5.2 million barrels of
fuel oil from Russia and the Middle East in recent few weeks for
deliveries from late June through July, four traders and two
refinery officials familiar with the transactions told Reuters.
Independent refiners' fuel oil purchases dropped off sharply
from 2016 after Beijing allowed them to process imported crude
oil under a quota system. These refiners have also been
importing bitumen blend as a feedstock.
However, a recent crackdown on the trading of import quotas
and the introduction of hefty taxes on bitumen blend have now
reduced supplies - and options - for small refiners, the sources
"The quota investigations are making refiners worried that
they won't have enough permits for the rest of year," said Zhou
Mi, crude analyst with Shandong-based consultancy JLC.
The fuel oil purchases highlight the mounting challenges
facing China's smaller refiners, known also as teapots, as
Beijing works to consolidate its bloated refining sector and
reduce emissions. But they also represent a lucrative
opportunity for traders with access to supplies from Russia, the
Middle East and Singapore.
Suppliers of these shipments, mostly straight-run fuel oil,
a refinery residue that can be further processed into
higher-value diesel and gasoline, include global traders Vitol,
BP, Trafigura and Chinese major PetroChina.
All the four companies did not immediately respond to
request for comment.
Beijing introduced a hefty consumption tax on bitumen blend,
among other products, this month, making imports uneconomical.
Fuel oil is also subject to a consumption tax of
approximately $32 a barrel, but faces import tariffs of only
1-3% versus 8% for bitumen blend.
"We're in a transitional phase...testing out fuel oil which
compared to bitumen blend has a lower import tariff and works
better in economics," said a teapot executive at one of the
Despite costing more than crude oil, teapots could still
make a profit processing fuel oil as Chinese refining margins
estimated at around 655 yuan ($102.58) per tonne by end-May were
at their highest so far this year, supported in part by the new
taxes on blending stocks, JCL's Zhou added.
China's surging residual fuel imports could, however, trim
supplies elsewhere in the Asian low-sulphur marine fuel market.
"(This) should have a trickle down effect on 0.5% (VLSFO
prices) in Singapore as the majority of these grades were going
to the VLSFO bunker blend pool," said a fuel oil trader.
($1 = 6.3855 Chinese yuan renminbi)
(Editing by Gavin Maguire and Kim Coghill)