By Chen Aizhu
SINGAPORE (Reuters) – Sinochem Group may keep three bankrupt oil refineries in eastern China after auctions to sell them attracted little interest from other companies, sources familiar with the matter said.
The lack of interest in the plants illustrates the dire state of the refining sector in China, the world’s largest oil importer and second-largest consumer. The country’s factories, battered by declining fuel demand amid slower economic growth that has eroded margins, are processing less crude than the year before.
The Sinochem factories, smaller, older and less advanced refineries known as teapots, are also facing increased scrutiny that threatens the survival of other companies in Shandong province, where the majority of teapot factories are located .
If the refineries are not sold in the separate auctions, it could mean state-owned Sinochem will keep them by writing down debts to creditors and renegotiating taxes owed, according to two sources familiar with Sinochem’s thinking.
Sinochem declined to comment.
The exact amount of the debt could not immediately be determined, but tax administration data for the Shandong cities where the refineries are located show that the factories had a combined unpaid consumption tax of about 13.2 billion yuan ($1.82 billion) as of mid-2024 built up.
The plants, Changyi Petrochemical, Huaxing Petrochemical Group and Zhenghe Group Co, have a combined crude oil processing capacity of 380,000 barrels per day, or 3% of national output, and were auctioned in October through the government-backed Shandong Property Right Exchange Center. .
Huaxing was offered for 8.7 billion yuan, Changyi for 6.4 billion yuan and Zhenghe for 6.3 billion yuan, data on the Center’s website showed.
Sinochem, which separately operates a refinery and petrochemical complex in southeastern Fujian province, inherited the troubled Shandong refineries in a Beijing-orchestrated 2021 merger with their previous operator, state-owned ChemChina.
The auctions followed orders from the local court in September, which declared all three companies bankrupt after reorganization procedures were called off.
Documents on the Center’s website show that the plants do not have crude oil import quotas and that a new owner would have to reapply for all operating permits.
That would deter potential buyers, said several sources at other independent refiners operating in Shandong.
Without import quotas for crude oil, mills must rely on processing imported fuel oil, a more expensive commodity due to tariffs and consumption taxes, the sources said.
Unlike rival independent refineries in Shandong, Sinochem’s plants have shunned cheap crude from Russia, Iran and Venezuela due to Western sanctions, putting them at a competitive disadvantage.
Dismantling the factories is an unlikely option that could mean the loss of thousands of jobs, something that social stability-obsessed local authorities would be wary of, the two sources familiar with Sinochem’s thinking said.
Sinochem halted operations in Zhenghe and Changyi in mid-2024 as high crude oil costs and weak fuel demand reduced margins. According to local consultancy Sublime China Information, the third factory, Huaxing Petrochemical, has closed in recent weeks.
In late 2021, the Shandong government ordered the three factories to “self-correct” any irregular fuel tax practices, as part of a nationwide crackdown on independent refiners over quota use and tax payments.
($1 = 7.2420 Chinese Yuan Renminbi)
(Reporting by Chen Aizhu; Additional reporting by Beijing newsroom; Editing by Tony Munroe and Christian Schmollinger)
