SHANGHAI Petrochemical Co will incur an additional expense of about 300 million yuan (about HK$267.3 million) for the year due to an increase in crude oil prices under China's state allocation plan this month. The gradual removal of government subsidies and price controls means the mainland company is moving closer to operating in a free market. Analysts said they had discounted concerns of rising crude oil costs, which might squeeze Shanghai Petrochemical's profit margin, as they believed the greater cost would be offset by higher product prices in view of the strong demand for petrochemical products. According to industry sources, China has raised the crude oil price to the company, under its allocation plan, by 23 per cent or an average of 150 yuan a tonne to 800 yuan, up from the average price of 651 yuan a year earlier. But the percentage rise was relatively moderate compared with last year when the crude price jumped 42 per cent from an average of 459 yuan a tonne in 1992. Shanghai Petrochemical plans to process 4.8 million tonnes of crude this year, with 4.5 million tonnes of oil allocated from the government and the balance bought on the open market. In a bid to smooth its profit growth, the company also decided to evenly split its expenses on repairs and maintenance over two years. This year, it changed to a maintenance programme of once every two years from an annual one. A wide range of repairs and maintenance was carried out last year at a cost of 661.7 million yuan. The programme is expected to cost the company about 700 million yuan next year, but half of it will be booked in this year's accounts under the new financial arrangement. James Capel Research analyst Elizabeth Cheng expected the cost of crude oil to stabilise in 1996 as the price under the allocation plan would be close to the international market level by then. She was optimistic Shanghai Petrochemical could cope with the rising cost, because the company was moving towards producing more value-added downstream petrochemical products. Ms Cheng expected the international crude price to move lower due to an increase in oil supply from Middle-East countries. Anna Ho, an analyst with SBCI Finance Asia, said the prospects for Shanghai Petrochemical were promising in view of the country's excess demand for petrochemical products and a shortage of supply. ''Because it is a capital intensive industry, the domestic supply of petrochemical products will only grow at a slow pace,'' she said. However, Ms Ho noted that Shanghai Petrochemical's uniqueness would be reduced after 1996, when two new petrochemical production facilities were completed in Jilin and Maoming in Guangdong province. Jilin Chemical Industrial Co is among a second batch of state-owned enterprises designated by Beijing for listing abroad. It plans to spend more than 12 billion yuan on a project that will have an annual production of 300,000 tonnes of ethylene, an important intermediate petrochemical used in the production of synthetic fibres, resins and plastics.
