Asian refiners and petrochemical companies have started to cautiously monitor China's downstream industry in recent weeks, as the upcoming restart of a giant petrochemical complex in Fujian province could further intensify competition among regional end-users to secure ultra-light crude feedstocks.
China's Fuhaichuang, formerly known as Dragon Aromatics, plans to restart operations at its 4 million mt/year condensate splitter in July following a lengthy three-year closure, a company source told S&P Global Platts last week.
The rapid decline in Iran's condensate exports since late 2017 had already raised alarm bells among many Northeast Asian end-users that require a stable supply of ultra-light crude feedstocks, and the return of the giant condensate consumer in China does not bode well for the buyers overall, market participants said.
Regional end-users were especially concerned about the possible spike in spot differentials for Southeast Asian and Oceania sweet condensate grades, as Fuhaichuang intends to procure low sulfur ultra-light crude cargoes for the first two months of its operations.
"Australian [sweet] condensate has been our staple diet, but now we have to compete with South Korean and Chinese companies [to secure monthly supply]," a trading source at a Southeast Asian refiner said.
South Korean and Japanese refinery sources noted that the balance of demand and supply is tilting heavily against the buyers in the Asia Pacific ultra-light crude market, as many Northeast Asian end-users shift focus to regional sweet condensate grades in response to the shortage of Iranian supplies.
"If multiple buyers aim for the same regional grades, that's going to end up hurting the overall margins," a trading manager at a South Korean refiner said.
Fuhaichuang's condensate splitter is located in a larger petrochemical complex that also includes a 90,000 b/d hydrocracker and two 800,000 mt/year paraxylene plants.
The former Dragon Aromatics was restructured and renamed as Fujian Fuhaichuang Petroleum and Petrochemical on October 27, 2017.
The plant located in southern Fujian province has been shut since April 6, 2015, following an explosion, which resulted in damage to the plant's infrastructure.
COMMON FEEDSTOCK INTEREST
Fuhaichuang recently indicated that the condensate grades under consideration are mostly sweet regional ultra-light grades, including Australia's North West Shelf, Pluto and Indonesia's Senoro.
South Korean and Japanese refinery sources said competition to secure African and European condensate cargoes could also heat up, as Fuhaichuang had previously expressed interest in grades outside the Asia Pacific market, including Equatorial Guinea's Alba and Libya's Mellitah.
"Availabilities of these condensates are small while prices are high. But we have to take some, as we need low sulfur feedstocks in the initial stage," the company source said.
Hanwha Total Petrochemical, Asia's biggest condensate consumer, imported 529,000 barrels of Libyan Mellitah condensate in January and 521,000 barrels in February, a company source previously told Platts.
"We are worried about the growing number of bidders. What we want, [Fuhaichuang] will very likely feel the same," a trading manager at Hanwha Total said.
Among the recent trades concluded in the international spot market, Fuhaichuang was said to have purchased a cargo of Pluto condensate for loading May 19-23 from Woodside Petroleum, as well as around 600,000 barrels of Alba condensate from an unidentified Western trading company.
Australian and Equatorial Guinean condensates often serve as key feedstock grades for various regional end-users, including SK Innovation, Hanwha Total, Jurong Aromatics, CPC Taiwan, PTT and Pertamina.
Japan has also tapped into the Oceania market for some extra condensate barrels this year. The country imported around 681,000 barrels of Pluto condensate in January, Ministry of Economy, Trade and Industry data showed.
NOT ENOUGH SOUTH PARS
Apart from low sulfur condensates, Fuhaichuang will likely consider purchasing sour grades like Iranian South Pars once the plant's desulfurizer becomes operational, the company source said.
Fuhaichuang is currently building a desulfurizer that is expected to start operations in August or September, though this is subject to change, the source said.
Prior to the shutdown in 2015, Dragon Aromatics used to purchase through state-owned Zhuhai Zhenrong between 2 million barrels and 3 million barrels of Iran's South Pars condensate every month to use as feedstock.
"There is simply not going to be enough South Pars for everyone, if China starts to take a big chunk of the small pie left in the market," a Singapore-based condensate trader said.
Reflecting Iran's increasing domestic requirements following the start-up of phase two of the country's Persian Gulf Star condensate refinery in February, the National Iranian Oil Company has slashed South Pars condensate term allocations for Q2 by 25% from Q1 to around 350,000 b/d.
The Persian Gulf producer exported as much as 600,000 b/d of South Pars condensate during the first half of 2017, an NIOC source had previously told Platts.- Platts -