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Source: www.asiaecon.org |

CHINA'S PETROCHEMICAL INDUSTRY RESPONDS POSITIVELY TO STIMULUS PACKAGE


On February 19, China unveiled a stimulus package for the country's slumping petrochemical industry. Although the full details of the package have not yet been disclosed, the stimulus has already impacted the industry as it has allowed for the implementation of numerous projects aimed at boosting the sector's capacity and output, encouraging investor confidence and improving domestic demand.


On February 19, China unveiled a stimulus package for the country’s slumping petrochemical industry. Although the full details of the package have not yet been disclosed, the stimulus has already impacted the industry as it has allowed for the implementation of numerous projects aimed at boosting the sector’s capacity and output, encouraging investor confidence and improving domestic demand.

China’s petrochemical industry has been largely affected by the global financial crisis and falling oil prices. In 2008, the sector experienced a 10% drop in profits, reflecting a total fall of $73 billion. For the first time in 10 years, the industry posted negative income growth, reflected in the month of December. According to recent government figures, China’s three largest petroleum companies -PetroChina, Sinopec and CNOOC- are expected to have combined profits of $33 billion in 2008, reflecting a 31.3% decrease from the previous year. Sinopec alone expects its net profits for 2008 to decline by more than 50% compared to the year before.

Moreover, development in the sector has been largely unbalanced, according to a report from the China Petroleum and Chemical Industry Association (CPCIA). As an example, the report stated that in recent years China’s “primary chemical manufacturing saw serious excess capacity, while high-end chemical production was relatively weak and relied largely on imports”.

The stimulus, worth around $73 billion, will likely concentrate on the overall development of the petrochemical sector by investing on technology, restructuring, and optimization of chemical products, in order to increase quality and raise the industry’s global competitiveness.

The released details of the package include efforts to increase stockpiles of oil production, bolster domestic demand, improve tax policy and expand loans for the country’s petrochemical companies.

In an effort to satisfy China’s growing need for energy in the long run, the stimulus will also allow for increased oil reserves through the construction and expansion of refining companies, as well as increased support for domestic enterprises in foreign acquisitions and mergers.

The government has already released plans to build nine refining bases across the country over the next three years. Additionally, the government will aim to accelerate joint-venture refinery products between Chinese companies and companies in oil rich countries such as Russia, Venezuela and Qatar.

In fact, China and Russia have recently unveiled plans to jointly build a $4 billion oil refinery in China’s Tianjin municipality. The project will be developed by Russia’s OAO Rosneft and China’s National Petroleum Corp., and once concluded, will be able to process 10 million tons of crude a year. Plans to further increase the project’s refining capacity by another 10 million tons, are now been negotiated.

Combined, the initial projects planned under the stimulus package, will allow for an increase in China’s crude reserve capacity to around 281 million barrels, while increasing its refined oil reserves to 10 million tons by 2011.

A further boost in domestic demand for petrochemicals is said to take place once China’s overall $585 billion stimulus package, released last November, starts affecting the remaining sectors of the country’s economy. An expected relative stabilization in global oil prices this year, will also help to boost the petrochemical sector.

In fact, analysts already expect China’s major petrochemical companies to recover by the end of the year. A combination of stable oil prices, increased domestic demand, and the impacts of the stimulus package, will allow for increased revenues in the next following months. An analyst with Guotai Jun’an Securities in Shenzhen, predicts that, “Sinopec’s profits will grow 100 percent this year compared to last, while PetroChina will have almost the same profits as last year.”

The stimulus package is further expected to boost effectiveness, product quality, product availability and distribution, in the petrochemical sector. Moreover, investor confidence, which has already received a boost, is expected to increase as the stimulus further affects the industry. Increased international cooperation through mergers, acquisitions and joint-ventures, will allow for growth, technology transfers and increased global competitiveness within China’s petrochemical companies.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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