China’s second batch of crude import quota allocations has created uncertainty over the total volume that qualified independent refineries will be allowed to import for the full calendar year 2021, which is likely to make them cautious in their procurement activities in the coming months, according to market sources.

The Ministry of Commerce has allocated a further 35.22 million mt of crude import quota to 38 qualified refineries, lifting the total quota level allocated so far for the 42 qualified operating refineries to 152.44 million mt for 2021, S&P Global Platts reported June 21.

That leaves about 22.04 million mt of the 2021 quota yet to be released, with the volume allocated so far at 87% of the refineries’ collective annual quota ceiling of 174.48 million mt.

Following the latest allocations, 16 refineries have received 100% of their quota for 2021. In contrast, by early July last year the ministry had issued 100% of crude import quotas -- set at 179.4 million mt collectively for 2020 -- to the 44 qualified refineries operating at the time.

Refineries that have been issued lower allocations so far this year will now have to manage their buying volumes until it is clear whether they will be allocated their full quota for the year in subsequent rounds.

Following the recent investigation into import practices led by China’s National Development and Reform Commission, there is a lot of uncertainty around this.

“The government has not released any results from the investigation yet. But the probe this year looked more restrictive than the previous ones and I heard there are [likely to be] punishments on those who trade crude quotas, and who do not meet the conditions for getting quota,” a Shandong-based independent refiner said.

In the latest allocation, four operating qualified refineries were absent from the quota list. It is not the first time quota holders have been omitted from the list. In last year's second batch, which was issued in April, there were 13 of them, although subsequently they were granted full quotas in the third round, which came around June/July last year.

“But in the picture with the investigation, clouds rise on the horizon,” the Shandong-based refiner said.

“It has been very clear that the government is more strict on the quota allocation, by allocating less in the second batch,” the source added.

Aside from the 16 refineries receiving 100% quota, ChemChina was allocated at 97% of its quota while the other 25 generally got around 70-85% of their annual ceiling.

Next round of allocation

Some optimistic quota holders told Platts that they expect the next round could be issued as early as August, along with additional allocations for new facilities that Zhejiang Petroleum & Chemical and Shenghong Petrochemical are due to bring online.

ZPC is bringing 20 million mt/year of new capacity online this year in its phase 2 expansion, with at least one of the two new 10 million mt/year CDUs having begun trial runs, while Shenghong's 16 million mt/year facility is set to start commissioning in the second half of the year.

“For the new phase 2 project, we have initialed a separate application for additional quota and are waiting for reply,” said a source with ZPC.

So far it has only been allocated 14 million mt of quota for 2021 against its current ceiling of 20 million mt/year. And ZPC has imported about 11 million mt of crude oil in January-May, according to Platts data.

In China, refineries built and operated by state-owned companies CNOOC, PetroChina, Sinochem and Sinopec do not need quotas to import crude. All other refineries, including independents and those owned and operated by other state-owned companies such as ChemChina and Norinco, require quotas.