Economic Functioning of the Petroleum/Chemical Sector in August  

By Feng Shiliang, CPCIA   

According to China Petroleum and Chemical Industry Association (CPCIA), the petroleum and chemical production in China grew rapidly in August 2008 and the exports continued to increase. The petroleum/chemical sector in China accomplished a total production of RMB604.18 billion in August, a year-on-year increase of 34.9%, showing 16.3 percentage points higher. Of which, the total production was RMB311.34 billion for the chemical sector, up 29.4%; RMB105.2 billion for the oil/gas recovery sector, up 47.3%; RMB175.79 billion for the refining sector, up 37.4%; RMB11.84 billion for the special machine manufacturing sector, up 50.5%.
   During January to August, the total production of the petroleum/chemical sector in China was RMB4.44 trillion, an increase of 32.9% year-on-year, compared with the 20% growth in the year-ago period.

1. Growth of energy production

China produced 16.026 million tons of crude oil in August, an increase of 1.6% year-over-year, and 6.34 billion m3 of natural gas, an increase of 10.1%. In the first eight months of 2008, China produced 126.432 million tons of crude oil and 50.36 billion m3 of natural gas, up 2.1% and 13.9% respectively.
   China National Offshore Oil Corporation (CNOOC) discovered six new oil/gas fields in the first half of 2008.
   In August China processed 29.191 million tons of crude oil, an increase of 5.1% year-on-year. The output of oil products was 18.197 million tons, an increase of 10.6%. From January to August, the processing amount of crude oil was 217.202 million tons, up 5.7%, and the output of oil products was 128.499 million tons, up 7.4%.

2. Production growing for agrochemicals and export reduction for fertilizers

China manufactured 5.031 million tons of fertilizers in August, an increase of 8.6% year-on-year, lowering 2.4 percentage points. Of the total, the output of nitrogenous fertilizers was 3.599 million tons, up 10.5%; the output of phosphate fertilizers was 1.069 million tons, up 1.0%. During January to August, China produced 39.658 million tons of chemical fertilizers, an increase of 6.0%. Of the total, the output of nitrogenous fertilizers and phosphate fertilizers was 29.241 million tons and 8.477 million tons, up 6.7% and 2.8% respectively.
   As China imposed a special tariff on exports of fertilizers, there was a drastic reduction in fertilizer exports. In August, the export value for fertilizers was RMB590 million, a drop of 53.6% year-on-year. The reduction margin was 46.6% for nitrogenous fertilizers, 46.1% for phosphate fertilizers and 69.9% for compound fertilizers.
   Pushed by the increasing cost, the prices of fertilizers rose further in August. The yearly average price growth for thirteen fertilizer varieties involved reached 76.2%. The hike price making farmers reduce uses of fertilizers, along with the constraint on exports, the sales in producers dropped drastically, with the rising inventory. According to a rough statistics, the inventory of DAP was more than 1.0 million tons in August. Fertilizer producers will face with operational difficulties in the remaining months of 2008.
   In August the output of pesticides in China was 139 000 tons, an increase of 2.6% year-on-year. In the previous eight months of 2008, the output of pesticides was 1.324 million tons, up 18.75%.

3. Robust coal chemicals

The central and western regions of China with rich coal resources have great enthusiasms in developing coal chemicals in recent years. The Chinese government has defined the eastern Ningxia zone as the state-class coal chemical industry base. The local government of Ningxia region has set a target for building the Asian leading coal chemical industry base at the eastern Ningxia zone in the next dozen years.
   The site selection report and the development plan for the Sichuan Yibin Coal Chemical Industry Zone have already passed preliminary examination. Zhenzhou of Junlian County, Yibin is the choice preferred for the site. It is planned that the Sichuan Yibin Coal Chemical Industry Base will consume 10.0 million tons of coal a year and form coal-methanol-dimethyl ether and methanol-propylene-acetic acid-monoethylene glycol product chains by 2015.
   Shanxi province has also stepped forward the development of coal chemical production. The State Development Bank Investment Co., Ltd. and the Shanxi provincial government have signed a framework agreement on strategic cooperation of coal chemicals. The company will invest around RMB80 billion in the next ten years to construct a coal chemical cyclic economy demonstration park in Shanxi province and form a coal-power-methanol-olefin industrial chain.
   The coal-to-oil capacity in China will reach 1.5 million t/a by 2010, with dimethyl ether capacity of 5.0 million t/a, the coal-to-olefin capacity of 1.4 million t/a and the coal-to-methanol capacity of 16.0 million t/a at that time.

4. New materials

In the first eight months of 2008, China's synthetic material sector achieved a total production of RMB374.01 billion, up 19% year-on-year. The total production of specialty chemicals was RMB500.5 billion, up 34.9%.

5. Basic chemicals

In August China produced 1.536 million tons of caustic soda, up 1.1% year-on-year, lowering 14.8 percentage points; 1.66 million tons of soda ash, up 11.5%, lifting 3.1 percentage points; 49.41 million PCS of tires, up 14.8%, lowering 8.3 percentage points. With the growing domestic demand, the consumption for tires increased 30.1% from January to July.

6. Slow growth of production and exports

In the first eight months of 2008, the output growth of synthetic resins was 10.6 percentage points lower than that in the same period of 2008. The decrease of output growth was around 14.0 percentage points for synthetic fibers, some 16.0 percentage points for ethylene and 5.7 percentage points for fertilizers. The growth of export value for synthetic materials was 14.0 percentage points lower year-over-year. The year-over-year decrease of exports growth was 23.5 percentage points for coatings and pigments, 55.7 percentage points for fertilizers and 14.5 percentage points for rubber products. In case the production growth and the export growth continue to lower, the petrochemical/chemical sector will be impacted heavily.

7. Projection

According to CPCIA, the global financial upheaval and the economic slowdown will seriously affect exports and investments in China. It is expected that China's petroleum/chemical sector will see a relatively stable growth in the fourth quarter of 2008, with the slower growth of petroleum/chemical production. The annual growth of the petroleum/chemical production will be around 28% for 2008 and the annual growth of the sales revenue will be around 27%.