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Petrochemical Industry Reels From Oil Price Rise
Dong Wenduo says there's trouble ahead for China's petrochemical industry.
Prices for crude oil, the raw material for petrochemicals, have risen 50 per cent this year, pushing up costs for companies like Beijing Yanshan Petrochemical (0325), one of China's top producers of ethylene and propylene - materials for making plastic bags and synthetic rubber.
Crude oil prices aren't about to fall anytime soon, said Mr. Dong, marketing director of Beijing Yanshan. Not while oil inventories fall in the US, the world's No1 energy user, and Opec (Organisation of Petroleum Exporting Countries) shows reluctance in boosting output to meet world demand and lower prices that are near 10-year highs.
High crude oil costs ``are placing a lot of pressure on the industry,'' said Mr Dong. ``We hope the government can lower tax rates for the refining and petrochemical industry or reduce the import tax on crude oil imports to relieve our burden.''
Beijing Yanshan, a unit of China Petrochemical Group, or Sinopec, cut its profit estimates this year by ``more than half'' from 650 million yuan (HK$612.9 million), Mr. Dong said, because it hadn't expected oil prices to rise so high this year.
Several Opec members have argued markets are adequately supplied and more oil from its members might not result in higher inventories. Opec will meet September 10 to decide on whether to increase output.
Hong Kong-listed Beijing Yanhua Petrochemical, another member of the Sinopec family, has so far managed to cushion the impact of higher oil costs by increasing sales and introducing new machinery to reduce costs, an analyst said.
The company said it's first half net income will rise more than 145 per cent to 244 million yuan.
Beijing is also helping. On July 7, China raised producer prices for petrol and diesel fuel by 6 per cent to keep them in line with the world market, and help shore up profits at the two major state refiners, PetroChina and Sinopec.
Beijing raised retail petrol and diesel prices last week - the sixth increase since November - to bring them in line with international prices.
While that helps the big oil and petrochemical companies, it hurts the livelihoods of tens of thousands of taxi drivers in major Chinese cities.
In Beijing, the local government started providing each taxi driver 100 yuan in subsidies a month to help defray rising fuel costs. From July 14, it allowed some taxis to partly transfer higher fuel costs to customers by raising fares.
Crude oil prices could hinder China's efforts to invest in overseas oil fields, as higher crude prices makes the investments more expensive, said Zhang Hanya, a research director at the State Development Planning Commission.
"Higher oil prices would also raise the cost of investing in China, though not by much," he said.
China's growing dependence on crude oil imports prompted state-controlled oil companies like China National Petroleum to buy equity stakes in oil fields in countries like Sudan. China depends on oil for 30 per cent of its energy and bought 32.4 million tonnes from abroad in the first half of the year.
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