Shengli Oil & Gas Pipe Holdings, a company spun off from state-backed oil and gas major China Petroleum & Chemical (Sinopec) in 2004 to its employees, plans to expand its steel pipe production capacity by 43 per cent in two years even as sales are hit by Beijing's macro-tightening measures.
The Shandong-based firm plans to raise annual output capacity to 1.65 million tonnes by 2015 from 1.15 million tonnes last year, as it eyes opportunities in the central government's target to double mainland pipelines to 150,000 kilometres in 2015 from 77,000 kilometres in 2010.
Last year's addition of 5,500 kilometres was far below the 14,600-kilometre projected average annual growth, but CEO Zhang Bizhuang said orders are expected to pick up as several national and regional pipeline projects are due to begin tendering in the next two years.
These include PetroChina's 7,000-kilometre west-to-east gas pipeline that is due to start construction in the next few months, a pipeline linking gas fields in Shaanxi province and Beijing, and the second phase of a pipeline to transport gas from Central Asia to China.
Next year, Sinopec is expected to start building a 7,373-kilometre pipeline to move gas extracted from coal in Xinjiang to Guangdong and Zhejiang provinces.
'In PetroChina's projects, we'll face competition with their internal pipeline makers [owned by parent China National Petroleum],' Zhang said. 'But our capacity is more than three times that of the pipeline units [of Sinopec's parent], so we expect a greater share of orders from Sinopec.'
Last year, Shengli bagged 53 per cent of the 51,800-kilometre pipelines tendered by Sinopec, he said.
Asked about the size of Shengli's current order book, Zhang did not provide a figure, saying tendering of major contracts expected this year have yet to begin. Usually the company's order book equals two to three months of shipments, he added.
Shengli yesterday posted a 5.2 per cent rise in net profit to 93.78 million yuan (HK$114.79 million) for last year, even as sales jumped 61.7 per cent to 1.82 billion yuan. The gross profit margin of its mainstay product, spiral submerged arc welding steel pipe (SSAW), slid 23.7 per cent to 416 yuan per tonne because of keener price competition and increased proportion of sales coming from less lucrative narrower pipelines used in regional rather than national pipelines.
Zhuang said that because output volume has grown since the second half of 2011, when Beijing relaxed its grip on new infrastructure projects, gross profit margin from SSAW has rebounded to high levels last seen in 2009, when Beijing launched a 4 trillion yuan infrastructure programme to stimulate the economy.