China's independent oil refiners will form an alliance to purchase crude, in an effort to improve their negotiating stance with suppliers and possibly soothe credit-risk concerns surrounding the little-known companies. Sixteen companies, led by China's biggest private oil refiner Dongming Petrochemical, launched the China Petroleum Purchase Federation of Independent Refineries on Monday, backed by the authorities of eastern Shandong province, the hub of China's smaller, private refineries nicknamed "teapots".
The buying patterns of China's teapots are under scrutiny after the government allowed 20 of the plants to import crude oil for the first time since last year instead of the fuel oil they typically processed. The companies could potentially purchase up to a fifth of the 2016 imports to China, the world's second-biggest crude importer. However, credit issues have crept up around the little-known companies, creating hurdles in accessing supply. In December, teapot owner Baota Petrochemical Group Co Ltd could not get letters of credit for over $50 million worth of crude purchased from traders Vitol and Mercuria. Shortly after, another local trader called off a deal for a year's supply of fuel oil from Russia's Rosneft.
The Federation aims to start pilot joint crude purchases in late March, Zhang Liucheng, the chairman of the Federation and vice president for trading and marketing at Dongming told Reuters at the launch event. Dongming's Singapore-based trading arm, Pacific Commerce Pte Ltd, will act as the import platform for the Federation and as the exporter for the group's refined fuels output. The company has two experienced traders and a credit line totalling $4 billion, Dongming said.
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