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Challenging conditions may continue, says Sinopec

(China Daily/Agencies)
Updated: 2009-12-25 08:02

China Petrochemical Corp (Sinopec Group), Asia's largest refiner, expects business conditions to stay challenging next year as crude oil prices rise while fuel demand growth lags behind expansion in processing capacity.

The domestic oil-product market will be oversupplied next year when new refining facilities come on-stream and independent plants increase output, said president Su Shulin in an online newsletter yesterday.

Oil companies are expanding refining capacity to meet industrial demand spurred by the government's economic stimulus and to benefit from a fuel-pricing system introduced last year that ensures a profit.

"The overcapacity shouldn't have too big an impact on Sinopec, if the pricing mechanism works properly," Grace Liu, an analyst with Guotai Junan Securities Co, said. "Business should be better for the company next year as the demand recovery continues."

Under a new mechanism introduced in December last year, the government may adjust prices when crude oil costs change more than 4 percent over 22 consecutive working days. China last raised gasoline and diesel prices by as much as 8 percent on Nov 10, the country's fifth increase this year.

Hong Kong-listed unit China Petroleum and Chemical Corp has advanced 45 percent this year compared with the Hang Seng Index's 50 percent gain. Sinopec climbed 1.3 percent to HK$6.8 ($88 cents) yesterday, while the benchmark rose 0.9 percent.

The company, China's second-biggest oil and gas producer, gets almost all its revenue from refining and the sale and distribution of fuels. Oil production accounted for just over 2 percent of sales, according to its 2008 annual report. The company imports about 80 percent of the crude it processes.

Sinopec's fuel sales growth may ease this year on a slower economy and increased competition from independent refineries, it said. Rivalry in the domestic ethylene market will intensify in 2010 as new production capacity comes on-stream, Su said.

The State-controlled refiner estimates oil-product sales will rise 1.8 percent from a year earlier to 129 million metric tons. In 2008, sales climbed 3 percent to 122.98 million tons, Sinopec said in January.

China may use 8.3 million barrels of oil a day this year, 9.8 percent of world consumption and 46 percent of Asia's, according to data from the International Energy Agency.

China may increase its refining capacity by 2.9 million barrels a day between 2008 and 2014, the Paris-based International Energy Agency said in a report on Dec 11.