May 25, 2016 / 6:47 AM / in a year

From hinterland to wonderland: China's 'teapot' refinery boomtowns

BOXING, China/BEIJING (Reuters) - For Zheng Ruifeng, the 25-year-old son of a wheat farmer from eastern China, acceptance at a technical school specializing in petrochemical engineering was a life-changing event.

A staff walks in a museum of Chambroad Petrochemicals in Boxing, Shandong Province, China, May 10, 2016. REUTERS/Meng Meng

Zheng, who grew up expecting to spend a lifetime toiling on the family farm, instead works as a technician monitoring control panels for Chambroad Petrochemical, one of China’s largest independent refineries.

Earning 5,000 yuan ($760) per month - roughly five times what he could have expected to make working the fields - he got married two years ago and bought an apartment in nearby Boxing.

“At our company, employees are considered losers if they cannot save enough money to buy a home within five year of being hired,” Zheng said.

Zheng’s story offers a vivid example of the new wealth created by China’s so-called “teapots” - independent oil refineries that have become a new force in global energy markets since Beijing allowed them to start importing crude last year.

The teapots, who previously refined mostly low-margin fuel oil and whatever excess crude they might be able to pick up from the big state-owned players, have seen their profits soar.

The rise of the teapots, now able to refine imported crude in much greater quantities into high-value products such as gasoline, is reshaping the local economy in dilapidated rural parts of eastern Shandong province, where most are located.

At Boxing, a new Volkswagen dealership and freshly painted condos line a four-lane highway leading to the Chambroad refinery, where smoke-stacks rise above swathes of farmland.

Refinery workers in their 20s have driven up vehicle sales and home prices in this rural town of around 10,000 people.

“We are aiming to sell 400 cars this year, doubling last year’s sales,” a manager at the Volkswagen dealership said. He declined to give his name due to company policy.

“Young people from the refinery have a lot of savings but nowhere to spend. They bought cars so they can commute between their work place and the nearest city.”

TOUGH JOB

Despite their nickname, derived from their comparatively small size compared with refineries run by state-owned giants such as Sinopec, China’s teapots are now big enough crude buyers that global markets are taking notice.

Major oil ports such as Qingdao, in Shandong, have struggled to cope with the teapots’ thirst, causing huge congestion with supertankers sometimes waiting several weeks to discharge their oil.

In January, profit margins for independent refiners processing crude reached around 600 yuan per tonne, according to data from commodities specialist Sublime China Information Group. By contract, gross margins for refineries processing the teapots former staple fuel oil and crude blend stand below 70 yuan per tonne.

More than 20,000 truck drivers are employed by Shandong’s teapots to haul crude and refined products. Demand for drivers is such that wages have surged from 3,000 yuan per month to at least 10,000 yuan.

Wang Xiaojun, 38, had struggled to make ends meet with a series of part-time jobs and periods of unemployment before finding work driving a tanker.

“It’s a tough job. I work almost 16 hours every day,” said Wang, who eats on the road and sleeps in the cab of his truck. “Every single moment I want to quit my job. Then I think about how much I am paid.”

REVERSAL OF FORTUNE

The current boom represents a dramatic reversal of fortune for the teapots, with their newfound success running counter to Beijing’s policy for years of trying to squeeze them out by curbing access to bank loans and crude supplies.

By the end of 2000, more than 80 percent of Shandong-based refineries had closed.

But in late 2014, with China’s economy slowing towards its lowest rate of growth in a quarter of a century, the Shandong government unexpectedly published plans to support the province’s 49 large teapot refiners.

The provincial government did not respond to Reuters request for comment on the document.

The new state backing, combined with Beijing’s move last July to allow independent refiners to directly import crude, created tens of thousands of jobs in cities hard hit by lay-offs in the coal and steel sectors.

Mom-and-pop logistics business have mushroomed in Zibo, a small city at the epicenter of the teapot boom, while trading companies specializing in petrochemicals and oil products have seen their office rents double to 50-60,000 yuan per 100 square meters per year.

Wang Cong has a computer science degree from a top-ranked university in Beijing, but works as a manager at a small logistics company in Zibo. His wife, an alumnus of the elite National Academy of Chinese Theater Arts in Beijing, is a commodities news editor with a local data provider.

Wang complains about rising prices in Zibo’s restaurants - a recent quick lunch with clients that cost 200 yuan would have cost around 80 yuan six years ago, he says - but thinks both job prospects and work-life balance are better here than back in Beijing.

“Life is much less stressful than in big cities,” he said.

Reporting by Meng Meng and Chen Aizhu; Additional reporting by Haoyu Jiang and Henning Gloystein; Editing by Alex Richardson

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