China's oil, petrochem sector faces tough challenges

Workers at a coke-smelting furnace of Linhuan Coke Smelting Shareholding Co in Huaibei, Anhui province, the largest coke-smelting company in Asia. Coal chemical output will rise from about 10 million metric tons annually to 100 million tons by 2020, according to the nation's 13th Five-Year Plan, which is under discussion. Xie Zhengyi / China Daily

The 13th Five-Year Plan (2016-20) for the petroleum and petrochemical industry will focus on eliminating obsolete capacity and raising coal chemical output, officials said on Friday.

Excess capacity will be the sector's biggest challenge during the next five years, Gu Zongqin, head of the China National Petroleum and Chemical Planning Institute, said during the 2014 China Petroleum and Chemical International Conference in Tianjin.

"Overcapacity will be eased during the 13th Five-Year Plan period, but it will be difficult to resolve the problem entirely," he said.

According to the plan, which is still under discussion, seven petroleum and chemical production bases will be developed in Hebei, Jiangsu, Zhejiang, Fujian and Guangdong provinces.

Coal chemical output will rise from about 10 million metric tons annually to 100 million tons by 2020, according to the plan.

Li Yongwu, chairman of the China Petroleum and Chemical International Federation, said that the nation's petrochemical industry has made huge efforts to upgrade its structure and become more innovative during the years since the 2008 global financial crisis.

Many companies in the sector fell into the red as the global economy weakened during and after the crisis. But the sector has since rebounded, and in the first eight months of this year, it posted total profit of 558 billion yuan ($91 billion), up 30 percent from the comparable period in 2010.

"The industry will have to find new growth points to survive the changing market," he said.

China's industrialization and urbanization will bring opportunities to the petrochemical industry by driving up demand, and an expanding middle class will require better-quality chemical products, said Li.

However, most Chinese companies in the sector make low-end goods, so they need to upgrade their technology and products, he said.

Global demand for petrochemical products will continue to grow about 3 percent annually, which means that overcapacity is not the biggest problem for the whole industry, said Ernesto Occhiello, executive vice-president of Saudi Basic Industries Corp, one of the world's top six petrochemical companies.

He said that the two major challenges for the industry are innovation and sustainability.

"Chemical companies have to adapt to market changes, because client demand varies, which requires continuous innovation," he said. At the same time, governments and consumers are focusing on sustainability from raw materials to the entire production chain.

China is SABIC's fastest-growing market, and it has forecast China's demand for petrochemical products to increase 9 percent this year.

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