China's Teapot Refineries Hit Multi-Year Lows Amid Margin Squeeze

Independent Chinese refineries, commonly known as 'teapots,' have significantly reduced their operational output, reaching the lowest levels seen since 2017. Data from consultancy JLC, cited by Bloomberg, indicates that refinery run rates in Shandong province plummeted to just 50.5% last week. This sharp contraction is attributed to a confluence of economic factors impacting their profitability and market demand. Key drivers for the reduced operations include elevated feedstock prices, which have squeezed refining margins. Simultaneously, weak domestic fuel consumption in China has diminished demand for their products. Furthermore, ongoing restrictions on fuel exports have limited their ability to offload surplus production in international markets. These combined pressures have made it economically unviable for many independent refiners to maintain higher utilization rates. The current operational decline surpasses even the levels observed in 2020, a period when the initial impact of the COVID-19 pandemic severely curtailed China's fuel consumption. This underscores the severity of the current market conditions facing these refiners. The last time utilization rates were this low was in August 2017, suggesting a structural and sustained challenge rather than a transient blip.