UpdateChina’s Sinopec beefs up fuel supply, cuts chemical output

19 April 2011 07:25  [Source: ICIS news]

Sinopec Zhenhai Refining & Chemical Co(adds further details and analyst's comments)

SHANGHAI (ICIS)--China’s largest refiner, Sinopec, plans to boost domestic fuel supply to meet strong demand, via cuts in chemical production.

Sinopec will spare no efforts to increase refined oil products supply by cutting fuels exports, trimming chemical light oil and the operating rates of chemical plants,” the company said in a newsletter posted on its website on Tuesday.

No specific timeline for implementation of the new strategy was provided.

ICIS reported on Monday that Sinopec is eyeing a 10% cut in ethylene production from May, largely due to weak demand from downstream polyethylene sector.

Sinopec said it produced 31.55m tonnes of refined oil products in the March quarter, up by 6.2% compared to the same period last year.

Its refineries ran at 101% operating rate in the January-to-March period, and processed 54.72m tonnes of crude oil, up 7.4% year on year.

Sinopec continues to operate its refineries at full capacity this month and is expected to produce 10.54m tonnes of fuels, up 4% or 410,000 tonnes higher compared to levels in April 2010, according to the newsletter.

The company said its fuel exports to other regions were halted, except those supply to Hong Kong and Macao, even though overseas shipments meant better profit.

In line with the plan of boosting fuel production, the company will bring forward maintenance shutdown at some of its chemical plants, it said in the newsletter.

Sinopec's aromatics production, meanwhile, is not expected to be hit by the production cuts. Margins are currently good for paraxylene and aromatics facilities will continued to run at full capacity, said a company official.

“Now is the peak season for fuels, especially from [the] agriculture and industrial sectors. But higher crude cost squeezes profit of refineries, affecting their incentive, so the company have to take some measures to ensure supply,” said Fang Jun, an analyst from Essence Securities.

Sinopec's move may initially push chemical prices higher, but the pressure could ease as soon as crude values soften, Fang said.

Crude oil prices will likely fall to around $100/bbl (€70/bbl) in May or June on oversupply issue in Saudi Arabia and slower post-earthquake demand from Japan, he said.

($1 = €0.70)

Additional reporting by Bohan Loh

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