Shanghai Petrochem gears up to meet intense market competition

SHANGHAI Petrochemical Co is bracing for a rise in crude oil prices this year as a result of government deregulation, but expects to offset such rises by increasing its product prices.

''We anticipate crude oil prices to increase this year,'' said chairman Wang Jiming, in Hong Kong yesterday to meet analysts and the media after the company's annual results were announced last Monday.

Crude oil accounted for half of Shanghai Petrochem's cost of sales last year, at an average price of 651 yuan (about HK$579) per tonne, up from 459 yuan in 1992.

The company bought most of its oil from the Government at a subsidised price that was 65 per cent of international levels.

Last year, Shanghai Petrochem processed 4.77 million tonnes of crude oil, 95 per cent of which was allocated by the state, with the remaining 230,000 tonnes bought on the open market.

Mr Wang said the company would buy 300,000 tonnes of crude oil in the international market this year, and it planned to process 4.8 million tonnes of crude in this period.

Although government subsidies will be phased out, China will continue to provide 4.5 million tonnes of crude to the company until next year, shielding it from an upswing in oil prices over the next two years.

International prices of crude have been increasing. Mr Wang estimated that prices averaged 1,200 yuan a tonne in the first quarter of this year, compared with 1,040 yuan last year and 1,000 yuan in 1992.

James Capel analyst Elizabeth Cheng said Shanghai Petrochem's biggest challenge would lie in controlling its product costs, as a result of a rise in crude prices.

She doubts if it can raise product prices high enough to offset crude prices because of the slowdown of the Chinese economy.

She said Shanghai Petrochem's net profit could also be squeezed next year because the company would carry out maintenance work which would cut into productivity and boost expenses.

Gong Lixing, deputy director of Shanghai Petrochem's finance department, estimated the company's four important categories of petrochemical products would rise an average of seven per cent to 10 per cent in price this year.

Last year, prices of petroleum products soared 43 per cent, followed by 22 per cent for synthetic fibres, while plastics and resins prices, and those of intermediate petrochemical products jumped 12 per cent.

Mr Gong said the company would boost the proportion of products sold outside the state plan to 75 per cent this year from 65 per cent last year.

Mr Wang said the company had adopted a policy of ''delivery upon payment'' since last year.

Last year, the company had a turnover of 500 million yuan, down from 700 million yuan in 1992.

However, Mr Wang said it had sufficient financial resources for expansion after the share offerings in Hong Kong and China, which raised 3.4 billion yuan.