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Petrochem demand slows

By Wan Zhihong (China Daily)
Updated: 2009-08-20 08:05

The petrochemical industry is expected to report better earnings numbers in the second half of the year. [China Daily]

The recovery in China's petrochemical industry slowed last month due to weak demand, said an industry association yesterday.

The oil and gas exploration and oil refining sectors have seen solid recovery in July, but the rebound in the chemical industry has slowed down, China Petroleum and Chemical Industry Association (CPCIA) said in its monthly report.

"Weak demand is the main reason for the slowdown in the industry, while there still exists overcapacity in some sectors like fertilizers," CPCIA said.

In July, the total revenue of the petrochemical industry stood at 571.4 billion yuan, down 3.7 percent from June, said the report.

This is also the first month-on-month drop in the industry this year.

Analysts said along with the country's stimulus package for the petrochemical industry, companies in the industry would see better performance in the second half.

"The stimulus package has already taken effect in the industry by improving the investment environment," said Liu Gu, analyst, Guotai Junan Securities.

China approved a stimulus package for the country's petrochemical industry on Feb 19. The country will speed up construction of some large-scale oil refining and ethylene projects as part of the package.

The country will also build three or four oil refining bases in the Pearl River Delta, Yangtze River Delta and Bohai Sea-rim economic zone. The oil refining bases will have a minimum refining capacity of 20 million tons each.

Together with the refining facilities, three or four ethylene projects with annual production capacities of two million tons each will also be built.

Related readings:  Petrochem firms fare well in April  Petrochem turnover up in March  Govt boost for light, petrochem  40 projects under China's petrochemical stimulus package

The government also announced a batch of targets in the petrochemical stimulus plan and encouraged petrochemical companies to merge as demand gradually increased.

China has also plans to boost production of oil and natural gas by 4 percent and 58 percent, respectively, by 2011. Crude oil output is expected to touch 198 million tons, while natural gas production will be 120 billion cu m in 2011, a three-year plan chalked out by the National Energy Administration has outlined.

Under the blueprint, China will build some large oil and gas production bases over the next three years. The country will stabilize the output from oilfields in northeast China and the Bohai Sea Bay area, while speeding development of fields in the Tarim, Junggar, Erdos and Sichuan basins.

Boosted by the stimulus package, China's two major petrochemical companies are expected to see much better business performances in the first half compared with the same period last year, said analysts.

The two oil companies, PetroChina and Sinopec, will see "robust growth" in profits when they publish their interim reports later this month, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

The stimulus package for the petrochemical industry will give the two companies a boost, he added.