Demand for Sinopec's chemicals still slow
Sinopec Shanghai Petrochemical, the demand for whose products tracks the mainland economy's strength, says first-quarter chemical demand remains lacklustre despite a slight improvement from the fourth quarter of last year.
The firm's profitability has also improved from the fourth-quarter's net loss of 481.63 million yuan (HK$591 million) on the back of two price hikes in petrol and diesel, which the firm also produces besides petrochemicals, although the improvement is not sizeable, said chairman Rong Guangdao.
'Chemical prices have gone up 3 per cent in the first quarter but the cost of our raw material - crude oil - has also gone up and has remained high for a long time,' he said. 'Export sectors such as textile and other light industries remain weak, and so does domestic consumption, as reflected in property and automobile sales.'
Mainland exports grew 7.6 per cent year on year and imports grew 6.9 per cent in the first quarter, their slowest since the global financial crisis in 2009. Trade growth may remain in single-digits in the next few months, says a Citi research report.
Sinopec Shanghai operates the second largest refinery of oil producer and refining major China Petroleum & Chemical (Sinopec). It also produces a wide range of basic chemicals such as ethylene and polypropylene, and higher value-added fine chemicals.
As a result of Beijing's refusal to raise fuel prices in tandem with international crude prices to counter inflation, Sinopec Shanghai last month posted an operating loss of 453 million yuan in oil refining for last year, compared with a profit of 1.14 billion yuan in 2010.
Operating profit for chemical production fell 18.4 per cent to 1.46 billion yuan as weak demand growth and competition squeezed margins.
Despite the policy-induced refining loss, Sinopec Shanghai plans to produce 13 per cent more petrol and diesel this year as the state-backed refiner has a social responsibility to keep the market well-supplied.
Even though Beijing raised retail fuel prices by around 3.3 per cent in early February and about 6.4 per cent late last month, Rong said the refining industry continues to be in the red since retail fuel prices still fall short of the cost of crude and that of processing it.
Chief financial officer Ye Guohua said Sinopec Shanghai is considering raising its annual capacity to produce ethylene from the current 900,000 tonnes but first has to assess market demand because the government has stipulated that any expansion must not be less than 800,000 tonnes.