Sinochem closes third refinery in China due to low margins

The closure of Sinochem's third refinery in Shandong underscores the economic difficulties associated with rising crude costs and weak demand for refined fuel.

Share:

A Chinese court has declared the bankruptcy of Shandong Changyi Petrochemical, one of the refineries owned by the Sinochem group.
This decision comes after months of uncertainty surrounding the future of several refineries located in Shandong province, China’s main refining center.
Two other refineries belonging to the group, Shandong Huaxing Petrochemical Group and Zhenghe Group Co Ltd, have also been declared bankrupt in recent days.
The combined capacity of the three sites is 380,000 barrels per day, representing around 3% of national refinery output.
However, weak demand and steadily rising crude oil prices have made operations at these sites unprofitable, prompting Sinochem to temporarily shut down some of these units before their final closure.
The Group has not yet specified the fate of the assets of the three refineries.

A petrochemical sector in difficulty

China’s refining market is bearing the full brunt of rising crude costs.
Refinery margins have been severely squeezed, particularly in Shandong province, where independent refineries operated at just 56.4% of capacity in August 2024.
This 10-point year-on-year drop reflects the economic challenges facing the sector.
Falling demand for fuel, coupled with rising costs, is putting pressure on local players, forcing them to adjust production.
These closures are part of a wider drive to rationalize refining capacity in China.
For several months, the authorities have been seeking to concentrate production around the largest units, which are more efficient and better integrated into global supply chains.
Small independent refineries, often located in Shandong, are the first victims of this restructuring, especially as they are largely dependent on crude oil imports for their operations.

Impact on the supply of petroleum products

The closure of these refineries directly affects the supply of refined petroleum products to the Chinese market.
Although Sinochem’s three refineries account for only a small share of national capacity, their strategic location in Shandong makes them important players in regional fuel supply.
The impact of their closure could therefore be felt on the local market, where fuel prices could rise in the short term.
However, it is unlikely that these closures will have a significant effect on a national scale.
China has excess refining capacity, and the large production units located on the country’s east coast can quickly make up for lost production.
In addition, falling demand for fuel, particularly in the industrial and transport sectors, has enabled the largest refineries to maintain high inventory levels.

Sinochem’s future strategy

The series of bankruptcies suffered by Sinochem could signal a review of its strategy in the petrochemical sector.
As the group strives to reduce its losses in a market with squeezed margins, it could turn to more profitable sectors of the energy chain, such as fine chemicals or energy distribution.
In addition, current market conditions are forcing many players in the sector to consider collaborations or mergers to consolidate their positions.
Sinochem could, for example, forge closer ties with strategic partners to reduce operating costs and secure access to crude oil resources, a key factor in maintaining its petrochemical activities.
The next few weeks will be crucial in assessing the Group’s ability to bounce back from these successive closures.
Analysts agree that Sinochem will have to review its priorities and consider a broader restructuring of its activities to adapt to an increasingly volatile market.

The expansion of the global oil and gas fishing market is accelerating on the back of offshore projects, with annual growth estimated at 5.7% according to The Insight Partners.
The Competition Bureau has required Schlumberger to divest major assets to finalise the acquisition of ChampionX, thereby reducing the risks of market concentration in Canada’s oilfield services sector. —
Saturn Oil & Gas Inc. confirms the acquisition of 1,608,182 common shares for a total amount of USD3.46mn, as part of its public buyback offer in Canada, resulting in a reduction of its free float.
OPEC slightly adjusts its production forecasts for 2025-2026 while projecting stable global demand growth, leaving OPEC+ significant room to increase supply without destabilizing global oil markets.
Talks between European Union member states stall on the adoption of the eighteenth sanctions package targeting Russian oil, due to ongoing disagreements over the proposed price ceiling.
Three new oil fields in Iraqi Kurdistan have been targeted by explosive drones, bringing the number of affected sites in this strategic region to five in one week, according to local authorities.
An explosion at 07:00 at an HKN Energy facility forced ShaMaran Petroleum to shut the Sarsang field while an inquiry determines damage and the impact on regional exports.
The Canadian producer issues USD 237 mn in senior notes at 6.875 % to repay bank debt, repurchase USD 73 mn of 2027 notes and push most of its maturity schedule to 2030.
BP revised upwards its production forecast for the second quarter of 2025, citing stronger-than-expected results from its US shale unit. However, lower oil prices and refinery maintenance shutdowns weighed on overall results.
Belgrade is engaged in complex negotiations with Washington to obtain a fifth extension of sanctions relief for the Serbian oil company NIS, which is majority-owned by Russian groups.
European Union ambassadors are close to reaching an agreement on a new sanctions package aimed at reducing the Russian oil price cap, with measures impacting several energy and financial sectors.
Backbone Infrastructure Nigeria Limited is investing $15bn to develop a 500,000-barrel-per-day oil refinery in Ondo State, a major project aimed at boosting Nigeria’s refining capacity.
The Central Energy Fund’s takeover of the Sapref refinery introduces major financial risks for South Africa, with the facility still offline and no clear restart strategy released so far.
PetroTal Corp. records production growth in the second quarter of 2025, improves its cash position and continues replacing key equipment at its main oil sites in Peru.
U.S. legislation eases access to federal lands for oil production, but fluctuations in crude prices may limit concrete impacts on investment and medium-term production, according to industry experts.
Permex Petroleum Corporation has completed a US$2mn fundraising by issuing convertible debentures, aimed at strengthening its cash position, without using intermediaries, and targeting a single institutional investor.
Petróleos de Venezuela S.A. (PDVSA) recorded $17.52bn in export sales in 2024, benefiting from increased volumes due to U.S. licences granted to foreign partners, according to an internal document seen by Reuters.
The detection of zinc in Mars crude extracted off the coast of Louisiana forced the US government to draw on its strategic reserves to support Gulf Coast refineries.
Commissioning of a 1.2-million-ton hydrocracking unit at the TANECO site confirms the industrial expansion of the complex and its ability to diversify refined fuel production.
Oil stocks in the United States saw an unexpected rise of 7.1 million barrels as of July 4, defying analyst expectations of a decline, according to the U.S. Energy Information Administration (EIA).