Sinopec receives $1bn subsidy in April

Sinopec is now losing 3000 yuan ($425) on every tonne of oil product sold, due to China’s price freeze, according to Sinopec spokesman Chen Ge yesterday. And this is on top of official government subsidies paid to Sinopec, which rocketed to $1bn in April. This was more that the entire subsidy paid in 2007. And it will be higher still in May, as the government’s subsidy was based on April’s $98.60/bbl purchase price.

The government has massive foreign exchange reserves, of course, and there are no signs that it is preparing to relax the price freeze. Sinopec Chairman, Su Shulin, told Sinopec’s annual meeting yesterday that ‘it is hard to say’ when the government may allow diesel and gasoline prices to rise. In fact, the higher the price for crude, the more difficult it would be for the government to act – particularly with inflation already at a 12 year high, at over 8%. So demand will continue to grow unchecked by market forces.

This is bad news for petchem producers and consumers, who are already struggling to pass on current record feedstock levels.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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