Re­fin­ing sur­plus a loom­ing prob­lem: Sinopec

China Daily (Canada) - - BUSINESS - By LYUCHANG lvchang@chi­nadaily.com.cn

China, the world’s largest en­ergy user, is likely to have a se­ri­ous ex­cess in re­fin­ing ca­pac­ity amid boom­ing do­mes­tic de­mand for oil prod­ucts, a se­nior oil ex­ec­u­tive said onWed­nes­day.

“The fate of China’s steel in­dus­try to­day will be that of oil re­fin­ing to­mor­row,” said Fu Chengyu, chair­man of China Petroleum and Chemical Corp, also known as Sinopec, on the side­lines of the on­go­ing an­nual two ses­sions.

He warned that if the coun­try doesn’t ad­dress the prob­lem of ex­cess ca­pac­ity in oil re­fin­ing, the in­dus­try will soon have a se­ri­ous sur­plus, sim­i­lar to the one now ex­ist­ing in the coun­try’s iron and steel sec­tors.

The re­fin­ery ca­pac­ity in China is ex­pected to reach 740 mil­lion tons in 2015 and in­crease to 910 mil­lion tons in 2020 with an op­er­at­ing rate of only 67 per­cent, much lower than the 72-75 per­cent rate of the steel in­dus­try, ac­cord­ing to Fu, also a mem­ber of the Chi­nese People’s Po­lit­i­cal Con­sul­ta­tive Con­fer­ence.

As a re­sult, the sur­plus in the in­dus­try will rise to a whop­ping 220 mil­lion and 300 mil­lion tons by 2015 and 2020, re­spec­tively. The re­fin­ing ca­pac­ity is fore­cast to over­take the growth of oil prod­uct con­sump­tion in the coun­try in the same pe­riod, said a re­port re­leased by the China Petroleum and Chemical In­dus­try Fed­er­a­tion (CPCIF).

The coun­try had only a mod­est ex­cess ca­pac­ity — of about 6 mil­lion tons — back in 2009, when the re­fin­ing ca­pac­ity was about 227 mil­lion tons and do­mes­tic con­sump­tion to­taled about 221 mil­lion tons.

China’s boom­ing auto sec­tor, with its soar­ing de­mand for oil fuel, cou­pled with the coun­try’s rapid eco­nomic growth, were some of the rea­sons be­hind the re­fin­ing in­dus­try’s ris­ing out­put.

Fu, head of the re­gion’s big­gest re­finer, noted that over­ca­pac­ity also is ram­pant in small, lo­cal re­finer­ies, which sug­gests the govern­ment should call for the elim­i­na­tion of out­dated ones.

He said there are about 100 small-sized oil re­finer­ies with an an­nual ca­pac­ity of less than 2 mil­lion tons in some parts of China. With their rel­a­tively low com­pet­i­tive­ness, they are adding to the na­tion’s sur­plus ca­pac­ity.

Ex­perts said the ex­cess re­fin­ing ca­pac­ity not only makes mar­ket com­pe­ti­tion more fierce, but it also is waste­ful.

Mak­ing the pic­ture worse is the fact that China, the world’s big­gest net im­porter of oil and a leading buyer of petro­chem­i­cals, also is fac­ing sur­plus ca­pac­ity in chem­i­cals, Fu said.

China’s chemical in­dus­try has grap­pled with over­ca­pac­ity for a long time. But this year will be the sec­tor’s tough­est in quite a while.

Fu said con­sump­tion in the­chem­i­cal in­dus­try is grow­ing by 4 to 5 per­cent each year, with prices drop­ping sharply. He said he hoped that ex­port tar­iffs could be low­ered to give chemical pro­duc­ers a com­pet­i­tive edge in the global mar­ket.

Dur­ing the first quar­ter, prices of chemical prod­ucts slid, push­ing in­dus­try prof­itabil­ity to its low­est level since the sec­ond quar­ter of 2009.

“We need to pro­mote a healthy in­dus­try, one not built up by in­jec­tions of money,” Fu said. Yao Jing con­trib­uted story.

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