Several refineries in Shandong province, China, have recently declared bankruptcy as refining margins continue to decline and fuel demand remains weak. Two refineries operated by the chemical giant Sinochem—Zhenghe Group Co and Shandong Huaxing Petrochemical Group Co—were officially declared bankrupt after their creditors failed to reach agreement on restructuring plans, according to local court statements reported by Bloomberg.
A third Sinochem refinery, Shandong Changyi Petrochemical Co, is expected to start meetings with creditors later this month, as noted in another local court statement also cited by Bloomberg.
All three refineries have been largely inactive for months due to the drastic drop in refining margins, which have severely impacted Shandong’s refineries. Together, these refineries have a combined capacity to process 300,000 barrels per day of crude oil.
China has experienced weaker-than-expected road fuel demand this year, leading to a significant drop in refining margins. Many refineries are struggling with debt due to this situation. Independent Chinese refiners, particularly sensitive to low margins, have cut back on refinery throughput in response to weak margins and demand.
In the first week of September, refining margins across Asia fell to their lowest level for this time of year since 2020. This decline may lead to further reductions in refining activity across the region, including in China.
In August, Chinese refiners processed approximately 12.6 million barrels per day of crude oil, a decrease of nearly 10% from July and 17.5% from August of the previous year, according to a note from ING commodities strategists Warren Patterson and Ewa Manthey. This suggests that apparent oil demand fell below 12.5 million barrels per day, down more than 15% year-over-year and reaching its lowest level since August 2022.
The analysts also observed that China’s crude oil inventories increased at a rate of about 3.2 million barrels per day in August, marking the largest monthly build in inventories since 2015.