China’s Sinopec to reduce operations as freight rates soar

Bloomberg

China’s biggest refiner plans to reduce operations from next month after a surge in the cost of shipping crude eroded margins.
Freight rates have skyrocketed since the US announced sanctions on Chinese shipowners in late-September, triggering a flight from vessels owned by affected companies and a bidding war for alternative tankers. That’s driven up the cost of importing crude and is cutting into the profits made from refining.
Sinopec Corp. is looking to start cutting run rates from November, according to the people, who asked not to be identified as information is private. The company could reduce total processing by one million tons of oil in December, the equivalent of about 5% of the company’s refining.
The decision by Sinopec — China’s top refiner by capacity — comes at a time when Asian processors would typically be increasing run rates to cope with higher fuel demand from winter and holiday consumption.
The surge in oil-procurement costs has far outweighed an expected boost in margins toward the end of 2019 due to cleaner ship-fuel rules that take effect on Jan. 1.