China's small, independent refineries are setting up shop in Asian oil trading hub Singapore to secure fuel and raise funds, and more will follow as Beijing pries open its tightly state-controlled sector, traders said.
Sinostar PEC Holdings , which made a successful $41 million debut in the Singapore stock market on Wednesday, is one of China's expanding army of independent oil refiners and the first with an initial public offering at the bourse. These plants -- known as "teapots" and estimated to be about 100 in number -- have become a critical swing producer to supply 15 percent of the world's second-largest oil market.
That's a far cry from about a decade ago when Beijing set out to shut them down as part of efforts to improve air quality.
Petro-win, a firm backed by teapot owners and importing fuel for plants in eastern China's Shandong province, set up its Singapore office 11 months ago to carve a niche in the Asian trading community of fuel oil, of which China is the region's largest buyer.
"More of them will come here, for all the reasons you can think of," said one Singapore-based trader familiar with both companies, adding the reasons include securing feedstock, hedging market risks and raising funds.
China is gradually opening its oil sector to foreign and independent players, a pledge the government made when it joined the World Trade Organisation (WTO) in December 2001.
The small firms would start with fuel oil, one of the few Chinese fuels fully subject to market forces, before moving to the larger markets of crude oil and transportation fuel such as gasoline and diesel, which are still tightly controlled by state giants Sinopec Corp and PetroChina.
Fuel oil from South Korea, Russia and Venezuela are the main feedstocks for plants such as Sinostar's China-based refinery, since they are denied state crude supplies and not yet allowed to import crude.
"It's like many years ago Sinopec and CNPC decided to set up their own trading arms to replace Sinochem. It's about end-users getting up close to the market and learning how the market works," said a longtime trader based in Beijing.
China has so far this year granted two independent firms crude import permits and 17 domestic fuel wholesale licenses to state-run and private companies, allowing in new players that meet a tighter market entry level.