Mysteries about Brisk Output and Sales of China's Petroleum Industry

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Last updated at: (Beijing Time) Sunday, March 23, 2003

Mysteries about Brisk Output and Sales of China's Petroleum Industry

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"At present, the production and management in our enterprise is all in all very normal. We are not going to reduce production for we are not short of oil supply," a senior managerial person with Nanjing Yangtze Petrochemical Plant revealed to the reporter on 13 March 2003.

Recently, the US-Iraqi War has already erupted and the serious situation struck worries into the outside world. Whether the oil supply from the Middle East will be reduced or even come to a standstill, thereby greatly affecting the Chinese economy.

But it seems that domestic petroleum enterprises are not anxious about the oil shortage.

A fact is that one third of the crude oil supply for the Yangtze Petrochemical Plant is from domestic oilfield while two thirds are imported. Last year saw its crude oil importation reached 5.5 million tons. In the meanwhile the person also revealed that the oil import of the plant includes several sources, such as Iraq, Saudi Arabia, Venezuela, Indonesia and Russia.

Most of the oils used for now by the chemical petroleum enterprises like the Yangtze had already been bought from the international future market last year. The spot oil to be imported is only for balancing the stock and the shortage. The informed person of the Yangtze released the riddle, "it won't do not to do the future. To afford the need of several million tons of oil a year it's impossible to get them in all at once when they are needed."

An echoing point of view comes from Chen Huai, research fellow with the R&D center of the State Council. He said, "Smothering as the war is it won't affect us too much even though the war has really broken out." The world market is not short of oil supply by now, pointed out Chen Huai. The oil export from Iraq comes only to 0.2 percent of the total volume of oil exportation in the world and the import of oil from Iraq doesn't come to one percent of the total oil importation in China.

Happiness comes out from mishaps?

"Last January and February saw our company keep on getting in a normal profit. No impact ever imposed on our achievements due to the oil price fluctuation," said Wu Huishu, Secretary of the board of directors with the Zhenhai Chemical and Oil Refinery Plant.

The Zhenhai Chemical and Oil Refinery Plant is for the moment an enterprise, the largest of its kind in China, which is now listed in the stock market in Hong Kong. As the annual report for the year 2002 is not yet published Wu's not willing to reveal the particulars they've achieved. But she said for sure that the achievements in 2002 were surely better than that in 2001, hitting a new record that the Zhenhai Chemical and Oil Refinery Plant ever achieved.

However, the informed person of the Yangtze Petrochemical Plant revealed that "the efficiency achieved by the company in last January and February turned out the best over the past 20 years ever since the founding of the company." He cleared up the doubt of the reporter by saying, "Our superiority lies in deep-processing. Though the price of the crude oil has been up the price of our products gets higher due to the multiplier effect."

The informed person said by citing an example, the polyester provided by the Yangtze Chemical Petroleum Plant to Wahaha for making plastic bottles last year reached a price of 5000 yuan/per ton, but now it has risen to 6250 yuan/per ton. And the polyester needed by Wahaha alone now amounts to as many as 30,000-40,000 tons. As at present the by-product is at a high price now the Yangtze is going all out in production. "Now we sell what we've turned out with no more to spare."

"When the oil price goes up, the price of the byproducts goes up too. So we can make both ends meet between the increased profit and the price rise," said a high-ranking person with the Shanghai Petrochemical Plant. Last year saw our plant realize a profit of one billion yuan. Though the profit made in the first two months was less than that of the Yangtze yet still a par with that of last year.

"In the price-setting for gasoline, diesel oil and kerosene we follow the state-guiding price," explained Wu Huishu, Zhenhai still has some 30 percent side-products, such as benzene, asphalt, propylene and polypropylene and so on. For these products, the enterprise may decide the price by itself. Due to the "multiplier effect" there is a wide margin for profit.

With regard to the prosperous business in the purchasing and selling of the petrochemical products, Zhu Kuiran, Person in charge of the Sci-tech Development Company under the Shanghai Petrochemical Plant holds that this was a sort of pseudo-phenomenon. "It's not really in dire need of it but somebody is hoarding it." Chen Huai's view on it is, "The fluctuation of the oil price is induced by psychological effect and speculation, a rise driven up by some people and it's not because of the increase or decrease of the oil supply."

A very interesting phenomenon is that all the aforesaid interviewees told the reporter their own judgement. Once the US-Iraqi War breaks out the oil price will soon go down. Because, they are of the opinion as given in a report by the US Ministry of National Defence, "in the Middle East, what constitutes the first and foremost interests for the US national security is to ensure a stable oil price in the Persian Gulf for a smooth flow to other parts of the world."

A chance of reshuffle

Neither of the Shanghai, Yangtze Petrochemical Plants nor Zhenhai Chemical and Oil Refinery Plant is worrying about the shortage of oil supply. What they are worrying of is once the US-Iraqi War breaks out it will lead to a congestion in oil transportation and this will really exercise some disadvantageous influence on the Chinese petrochemical industry.

However, they would rather take the oil price rise as a chance, which is hard to come by. On the one hand it has vitalized the Chinese petrochemical industry as a whole while on the other "a slight inflation would help motivate the consumption." "The oil price rise will probably offer the Chinese petrochemical industry an opportunity to reshuffle, thereby taking up again the oil market," said Chen Huai.

As Chen Huai introduced, at the moment the world oil output amounts to 3.3 billion tons but the oil processing capacity has reached 4 billion tons. There is a processing capacity of one billion tons in China's peripheral areas, of which Japan comes to 0.26 billion tons, China 0.3 tons (including 60 million tons in Taiwan), 80 million tons in Singapore and 40 million tons in Indonesia.

"Though the oil price rise will exert pressure on us there's still somebody else who's under a pressure heavier than us," held Chen Huai. China has a population of 1.3 billion. Our byproducts still enjoy a broad market though the oil price has got up. However, to whom the petrochemical products of other countries are sold," Chen Huai raised the question.

By People's Daily Online

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