Price and market trends: Sinpec halts new petrochemical projects

08 May 2014 17:24 Source:ICIS Chemical Business

The Qingdao cracker project using LPG is halted, and two others may be at risk

China’s largest refiner Sinopec will halt investments in new petrochemical capacity to focus more on optimising operations of existing projects, taking into account continued weakness in the industry, a company official said on 30 April.

Among the projects that will not be actively pursued for now is the proposed 1m tonne/year ethylene project at Qingdao in Shandong province, the official with the company’s investor relations department said.

“At this moment, we think it’s not appropriate to make new investment, he said.

“Our chemical business is [under] big pressure amid fierce competition. We’re addressing the problem through lots of measures, including changing product portfolio, restructuring feedstock, better balancing of production chain, as well as new market penetration,” the official said.

In the first quarter of the year, Sinopec posted a loss of yuan (CNY) 1.3bn ($21m) at its chemical operations, reversing a CNY164m profit in the same period of last year.

Its Qingdao ethylene project, which was designed to use light hydrocarbon feedstocks like liquefied petroleum gas (LPG), was originally planned to come on stream in 2016.

The Sinopec official clarified that the project is halted but not scrapped, adding that the suspension has nothing to do with the fatal crude pipeline explosion in Qingdao in November 2013.

Two other projects of the company – a 1m tonne/year ethylene capacity in Hainan province and an 800,000 tonne/year project at Zhanjiang in Guangdong province – are at risk of being shelved, according to market sources, but these were not confirmed by the Sinopec official.

“All investments will [be re-evaluated] based on profitability,” the official said.

Sinopec has the advantage of having integrated upstream and downstream operations, enhancing its profitability even though it uses the more expensive naphtha as feedstock for production, the official said.

“All Sinopec crackers have upstream refineries to provide onsite feedstock supply, and such integrated operation allows us to adjust both feedstock and products structures in the most efficient ways,” he said.

“That’s why even [though] we have competition from Middle East ethane crackers, our chemical unit still could make profits most of the time. And a few of our chemical plants are doing very well in today’s environment,” the official said. Meanwhile, Sinopec is also seriously looking at coal as a cheaper alternative feedstock.

It has a 3.6m tonne/year coal-based olefin project in Inner Mongolia that is expected to come on stream in early 2017, he said.

The project is not affected by the halt in new investments.

“This is a pilot and demonstration project and we will use it to test the feasibility of coal chemical routes. Other such projects will only be considered after this one runs smoothly,” the Sinopec official said.

This scaling back of investments is seen in the context of the overall cooling down of the Chinese economy.

“This is something like following the momentum. You can’t expect aggressive company investments when the entire economy is decelerating,” a chemical trader said.

China, which is the world’s second largest economy, is keeping its 7.5% GDP growth target for the third year in 2014. Its actual average economic growth of 7.7% in 2013 was the lowest recorded in 14 years.

By Fanny Zhang