Refiner may spend 20b yuan on project

PUBLISHED : Wednesday, 04 September, 2013, 12:00am
UPDATED : Wednesday, 04 September, 2013, 3:17am

Sinopec Shanghai Petrochemical, one of China's top five refiners, is considering investing as much as 20 billion yuan (HK$25.3 billion) on a one million tonne paraxylene project that could reduce the country's reliance on imports of the raw material for making polyester.

Shanghai Petrochemical is the largest producer of paraxylene on the mainland, with annual capacity of 800,000 tonnes.

"The demand for paraxylene is very big," said Wang Zhiqing, the company's chairman and president. "We expect that the internal return on the project will top 20 per cent."

The country consumed 15.71 million tonnes of paraxylene last year, according to the China Securities Journal.

About 40 per cent of that was imported from South Korea, Japan and Taiwan, said Wu Fei, an analyst at Bocom International Securities. Imports of paraxylene accounted for just 14 per cent of consumption in 2000. The lucrative business of paraxylene production has spawned numerous competitors and is vulnerable to overcapacity.

The mainland's production capacity has risen more than fourfold to 9.3 million tonnes, and nearly three million tonnes of capacity is under construction or being designed, according to data compiled by internet portal Tencent.

"As demand for paraxylene will grow at 25 per cent a year, the extra capacity can easily be absorbed by the growth in demand," Wu said.

Shanghai Petrochemical turned around to make a 477.5 million yuan profit in the first half from a 1.14 billion yuan loss a year earlier, thanks to an 11 per cent reduction in the cost of processing crude oil.

The refiner has imported more low-priced oil from the Middle East to save costs, as its sixth upgrading programme, completed this year, enabled it to handle more high-sulphur-content crude oil from that region.

The Middle East's share of the firm's crude-oil imports rose to 84 per cent from 58 per cent a year earlier.

Wang said he was not worried about the potential impact of geopolitical tensions in Syria on oil prices, as the possibility for war between the United States and Syria was low, judging from a speech made by US President Barack Obama this week.

Shares in Shanghai Petrochemical rose 1.47 per cent to close at HK$2.77 yesterday.