China teapot plants form club for stiff fight

Bangkok Post - - WORLD - CHEN AIZHU

A group of in­de­pen­dent, or “teapot”, Chi­nese oil re­fin­ers is club­bing to­gether to sur­vive an on­slaught by sta­te­owned gi­ants and the rise of pri­vate chem­i­cal gi­ants, but in­dus­try an­a­lysts said the new al­liance may find it hard to stick.

Less than two years af­ter be­com­ing some of China’s new­est crude oil im­porters, around 20 in­de­pen­dent plants in the east­ern in­dus­trial heart­land of Shan­dong prov­ince plan to form a joint ven­ture to co­or­di­nate their pro­duc­tion, mar­ket­ing, crude oil im­ports and in­vest­ments.

The new al­liance, to be called the Shan­dong Re­fin­ing & Chem­i­cal Group, is to be head­quar­tered in the pro­vin­cial cap­i­tal Ji­nan, and as en­vi­sioned will be an up­grade on a crude-buy­ing fed­er­a­tion set up in early 2016 by some of the same mem­bers.

The group aims to pool funds and re­sources to pro­duce fu­els and chem­i­cals more ef­fi­ciently as they bat­tle stiff com­pe­ti­tion in an in­creas­ingly sat­u­rated mar­ket and un­der tight­ened en­vi­ron­men­tal and tax scru­tiny.

“We see the need to ad­vance to the next stage as we face com­pe­ti­tion from both the na­tional team and the pro­vin­cial team. We can’t af­ford op­er­at­ing like a plate of scat­tered sand,” said Zhang Li­ucheng, a vice-pres­i­dent of Shan­dong Dong­ming Petro­chem­i­cal Group, one of the ini­tia­tors of the stronger al­liance.

The ear­lier crude-pur­chas­ing club was too loose an or­gan­i­sa­tion and did not have much suc­cess, Zhang said.

But while Shan­dong Dong­ming and fel­low found­ing mem­ber Qingyuan Group are try­ing to build a more for­mal struc­ture, in­clud­ing reg­is­ter­ing the new com­pany as early as next week with a cap­i­tal­i­sa­tion of 50 bil­lion yuan ($7.7 bil­lion), there are few de­tails such as a list of mem­bers and when they will start to com­mit fund­ing.

An­a­lysts said pool­ing the as­sets and co­or­di­nat­ing the in­vest­ments of 20 plants that have mul­ti­ple pri­vate and lo­cal gov­ern­ment own­ers will be a huge chal­lenge.

“The new group shall have big­ger po­lit­i­cal bar­gain­ing power ... but it will be hugely dif­fi­cult to align all the var­i­ous in­ter­ests,” said Harry Liu, of con­sul­tancy IHS Markit.

An ex­ec­u­tive of a teapot re­finer that was a mem­ber of the crude buy­ers’ club said: “Each plant has its unique prod­uct lines and mar­ket­ing strate­gies, and ev­ery new in­vest­ment is a re­sult of thor­ough mar­ket stud­ies. How would you ex­pect the new group to co­or­di­nate?”

The ex­ec­u­tive said his com­pany was wait­ing to see a concrete ac­tion plan be­fore agree­ing to par­tic­i­pate.

State-owned ri­vals Sinopec and PetroChina op­er­ate larger, more so­phis­ti­cated plants, and have in­flu­ence over gov­ern­ment poli­cies such as fuel ex­port quo­tas, which are highly sought af­ter as China’s re­fined prod­uct out­put far ex­ceeds de­mand.

Jiao Chong, man­ag­ing di­rec­tor of Qingyuan Group, said the new ven­ture could use its larger mar­ket pres­ence to lobby the gov­ern­ment.

The planned group would have a com­bined crude oil im­port quota of over 50 mil­lion tonnes a year, or 1 mil­lion bar­rels per day, an amount on par with smaller state com­pa­nies like Sinochem and China Na­tional Off­shore Oil Com­pany (CNOOC).

“We can be­come a stronger voice in lob­by­ing for poli­cies like fuel ex­port quo­tas,” Jiao said.

The need for the in­de­pen­dent re­fin­ers to club to­gether is height­ened by the emer­gence of new ri­vals, such as pro­vin­cial gov­ern­ment-backed pri­vate chem­i­cal gi­ants like Rong­sheng Hold­ing Group and Hengli Group that are build­ing or plan­ning re­fin­ing com­plexes on China’s east­ern coast.

File photo shows a vis­i­tor look­ing at state-owned CNOOC’s oil re­fin­ery in Huizhou, Guang­dong prov­ince.

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