China petchem industry faces tough 2008

19 December 2007 05:09  [Source: ICIS news]

BEIJING (ICIS news)--Chinese petrochemical producers will face increasing pressure from stringent controls on energy use, safety and environment in 2008, higher operating costs and credit curbs, a local industry official said on Wednesday.

Public awareness of the environment and safety impact of chemical plants was increasing and large companies should take the lead to be more socially responsible and to create a good public image, Meng Quansheng, a vice president at China Petroleum and Chemical Industry Association (CPCIA) said at a conference.

China has targeted to cut emissions by 10% and to reduce energy consumption and companies must strive to meet them by end-2009, he said, adding that plants with outdated technologies would gradually be shut.

Companies should also learn from past accidents and continue to focus on increasing safety measures at plants, he added.

Multiple incidents in China such as the Songhua River pollution have put chemical plants in the spotlight. This year, the Jiangsu provincial government shut close to 1,200 small chemical plants after severe pollution at the Tai Lake, Meng said.

A landmark protest by Xiamen city residents against a paraxylene (PX) project this year has also forced the local government to put it on hold.

In response to this, China National Petroleum Corp (CNPC), the country’s largest crude oil producer and parent of PetroChina, issued its first social responsibility report earlier this year.

China National Chemical Corp (ChemChina), which recently acquired a major local water treatment plant maker, has taken the lead by promising “zero emission” in waste water for new projects, Guo Youzhi, a liaison officer said at the 2007 China Petroleum and Petrochemical Economics conference organised by the CPCIA.

Increasing environmental awareness would also affect the demand for chemicals in China, Gao Chunyu, a senior engineer from Sinopec’s Economics and Development Research Institute, said.

Technologies to recycle polyethylene terephthalate (PET) and polypropylene (PP) woven bags into fibres and floor tiles have matured, he said, adding that more styrene-butadiene-styrene (SBS) would be used in bitumen.

Besides pressure from environmental concerns, companies were facing higher operating costs as taxes and prices for resources, land and labour increased, the association said in a report released at the conference.

Labour costs were also expected to increase after a new law gradually kicked in, it added.

Sinopec and PetroChina, the country’s two largest oil producers, faced even greater pressure as petroleum prices were still capped much lower than market rates, it added.

Gasoline prices were around yuan (CNY) 8/litre ($1.08/litre) cheaper in Shenzhen than Hong Kong, Meng said.

Crude oil prices were expected to remain at $80-90/bbl, keeping petroleum and chemical prices at high levels, the association said.

Sales and profit growth for the petroleum and petrochemical sectors were expected to slow slightly to 20% and 19% respectively in 2008 compared with 2007, in line with a gradual slowdown in China’s economy to 10% from over 11%, Meng said.

The industries have enjoyed strong growth in the past five years. In 2007, sales in the petroleum and petrochemical sectors jumped 22.5% to CNY51,000bn while profits rose 21% to CNY530bn, Meng said.

China will still need to depend on chemical imports next year, he added. Imports of organic chemical raw material will account for 20% of the country’s needs and it would also need to buy around 30% of the three major synthetic resins – polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) – from overseas, he said.

($1=CNY7.39)

By: Florence Tan
+65 6780 4359

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