CIMC Enric looks to Russia as China’s natural gas consumption growth cools dramatically

PUBLISHED : Tuesday, 22 March, 2016, 6:55pm
UPDATED : Tuesday, 22 March, 2016, 8:45pm


CIMC Enric, China’s largest maker of natural gas storage equipment that also makes stainless-steel containers for chemicals and liquid food products, says the outlook of the gas storage market remains challenging as diesel remains the preferred fuel in the country.

A lack of synchronisation of pricing between natural gas and crude oil-based fuel such as diesel and petrol saw mainland China’s natural gas demand growth slow to 5.7 per cent last year, the weakest in more than a decade. This compared with 8.6 per cent in 2014 and teh average of 15.3 per cent for the past 15 years.

“Lower natural gas prices will have some positive impact for us but the degree of benefit is hard to quantify,” chairman Gao Xiang said on Tuesday of the 28 per cent gas price cut by Beijing in late November after a prolonged period of weak gas demand. “Our customers are still recovering from the downturn.”

General manager Liu Chunfeng told reporters that the firm had yet to see a rise in orders for gas equipment in mainland China, but it had picked up orders from Russia and Kazakhstan. Overseas sales accounted for less than 10 per cent of sales in the segment.

Piped-gas distributors serving residential and industrial customers have said demand in the first two months of this year have rebounded following the price cut, but it appears the recovery has yet to show up in the transportation segment that CIMC Enric targets.

Management at city-gas distributor Hong Kong and China Gas has told analysts that its mainland China gas sales growth is expected to exceed 10 per cent this year, compared to 2 per cent last year, according to a Credit Suisse report.

CIMC Enric late on Monday posted a 49.5 per cent fall in net profit to 519.2 million yuan for last year as revenue slid 26.9 per cent to 8.24 billion yuan.

Gao said orders on hand stood at 7.5 billion yuan at the end of February, one billion yuan higher year on year, with the growth primarily from the liquid food segment.

The Shenzhen-based firm is a subsidiary of China International Marine Containers (Group), which is a unit of ports-to-financial-services conglomerate China Merchants Group.

Operating profit at CIMC Enric’s largest revenue source, compressed or liquefied gas storage and transportation equipment like tanks and trailers, plunged 60.4 per cent to 237.8 million yuan from 2014.

While Beijing has largely let market forces determine diesel and petrol prices, except when crude oil exceeds US$130 or falls under US$40 a barrel, liberalisation of natural gas prices has lagged despite its intention to further relax its grip in the next two years after a pricing reform late last year.

The sharp drop in crude prices and the slow reduction in state-guided gas prices meant natural gas had lost its competitiveness against diesel and petrol. This has stalled plans that would have seen vehicle owners convert from diesel and petrol to natural gas either by converting engines or buying new vehicles powered by natural gas.

Owing to high processing, logistics and infrastructure costs, of which the bulk is fixed in nature, natural gas needed to be priced at a discount of at least 25 per cent to diesel to generate the same heating value, Gao said.

CIMC Enric fared better in the chemicals storage equipment segment, which accounted for a third of its revenue, with operating profit falling 30.3 per cent last year to 345 million yuan.

The liquid food equipment segment was the bright spot last year. Contributing a quarter of its revenue, the segment saw operating profit grow 2.8 per cent to 251.9 million yuan.