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Oil giant Sinopec overhauls fuel buying policy: What will change?

March 28, 2017 5:17 pm

Sinopec says it would start from April to centralize refined fuel purchasing to balance supply, cut costs and boost efficiency

Asia’s top refiner Sinopec Corp said on Tuesday that it will begin buying gasoline and diesel fuel from third parties through its central office in Beijing, a move that puts further limits on China’s independent oil refiners.

In an e-mailed statement, Sinopec said it would start from April to centralize refined fuel purchasing to balance supply, cut costs and boost efficiency, without giving details of the plan.

Three industry officials informed of the plan said the fuel marketing office at Sinopec’s headquarters will negotiate directly with China’s independent refiners, sometimes known as teapots, and other third-party suppliers over volumes and prices for gasoline and diesel.

Previously, Sinopec bought fuel through scores of its regional marketing offices that set prices and dealt with suppliers on their own.

By consolidating their buying, Sinopec’s plan further restricts the independent refiners that have already been required to sell their refined fuel inside China after the government scrapped their export licenses.

Michal Meidan, Asia analyst with consultants Energy Aspects, said the plan is likely to weigh on teapots’ margins, even though volumes of products sold to Sinopec may not fall significantly.

“The aim is to ensure purchases of high quality fuels and improve Sinopec’s bargaining power,” said Meidan, adding that the centralized buying plan may also potentially reduce the third-party volumes Sinopec buys.

 

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Apart from the independents, mostly based in Shandong province in eastern China, refineries operated by China National Chemical Corp (ChemChina) and state-owned Sinochem are also on the suppliers’ list.

While Sinopec’s centralisation plan impacts the independent refiners, the change could serve as an unintended impetus for large independents to step up investments in logistics to win fuel customers outside the state refiners, said Zhang Liucheng, vice president of Shandong Dongming Petrochemical Group, the country’s largest independent refiner.

 

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“It’s a rare chance for us to make an aggressive push to reach clients beyond the oil majors, the thousands of private gas stations.” said Zhang, referring to the country’s extensive privately owned fuel retailers.

Under the plan, Sinopec’s Shandong-based marketing offices are allowed to maintain direct procurement with Shandong-based independent plants, but the volume is considered fractional versus Sinopec’s total third-party procurement, said Zhang, who has received Sinopec’s notice on the new purchase program.

 

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