Posted on 08/12/2006 6:57:57 AM PDT by thackney
As oil prices surge, China's petrochemical industry is making profits but the crude oil processing sector is in the doldrums, losing a total of 28.41 billion yuan from January to June, more than seven times the figure over the same period last year, an industrial insider said here on Friday.
The unprecedented losses paradoxically result from very high world crude oil prices, said China Petroleum and Chemical Industry Association (CPCIA) deputy chairman Yang Weicai at a forum in Beijing.
He explained that fluctuations contained below 70 US dollars per barrel do not have a negative impact on refinery and petrochemical company profits. However, when the benchmark price is exceeded, the effects cannot be absorbed by the processing industry, Yang said.
When the crude oil price surged to 78 US dollars per barrel, the processing industry eschewed raising the prices of finished products for fear of dampening market demand, and as a result sustained heavy losses, he remarked.
In the first half of the year, losses among China's oil processing companies reached 43.85 billion US dollars, up 109.3 percent year-on-year. This represents 32.2 percent of the country's total industrial losses.
While the oil processing sector is doing poorly, CPCIA statistics reveal that, even if profits are growing more slowly than last year, the petrochemical industry as a whole has chalked up a total of 219.9 billion yuan in profits from January to June, up 28.2 percent year-on-year.
Yang said certain petrochemical products, such as rubber goods, farm chemicals, fertilizers and synthetic fibre might soon face an oversupply situation since high investment in these sectors is likely to tip the balance between supply and demand.
I take it from this that the prices are fixed for the finished products in China.
Sounds like they need a traffic cop.
You are right. The Chinese government is talking about raising prices on refined products, but has not done so because of pressures from consuming industries. Last month I taught a course for VP-level managers at Sinopec, the largest Chinese refining company, and they were all lamenting the impact of price controls on the profitability of refining operations.
This is going to put a real dent in the ability of Chinese oil companies to pay up for foreign oil reserves. Which is probably a blessing in disguise for them. Since they always overpay.
It is true that there is price fixing in China: It leads to the continued increasing demand despite the massive rise in prices.
Related story:
http://www.freerepublic.com/focus/f-news/1682390/posts
Thanks for the link,
Did you notice who posted that thread? ;-)
It's always worth crosslinking stories like this.
Thanks for posting them.
Sure, I like learning about all the energy related topics.
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