End of the road for China’s teapots - Asia's swing producers

We aim to identify the marginal refinery configuration in Asia so that we can correctly forecast our short-term product prices, margins, throughputs and trade balances. In our assessment, China’s teapot refiners are marginal swing producers because of their scale and weak margins. Teapots are private refiners in China that are not owned by Chinese NOCs. In our estimate, Chinese teapots account for over a quarter of China’s refining capacity. After a period of good margins in the last few years, teapot margins are expected to fall due to lower crude discounts and lower product value realisation. With this view on margins, we forecast a decline in teapot crude processing, which also affects our views on China’s product exports and Asia’s overall regional balances. The trend of lower margins coupled with China’s strict policy on promoting the high-quality development of green innovation in the refining industry will force many teapots to close in the longer term.