Review of Petroleum and Chemical Industry in 2006
By Feng Shiliang of CPCIA


1 Economic functioning of the petroleum and chemical industry
in 2006

    (1) Rapid growth of production

With the completion of new and expanded facilities, petroleum
and chemical production in China grew rapidly in 2006. According
to the latest data published by the China Petroleum and Chemical
Industry Association (CPCIA), the current price industrial
output value attained by the petroleum and chemical industry
from January to November 2006 was RMB3 867.38 billion, an
increase of 27.6% over the same period of 2005. The main-business
revenue was RMB3 797.11 billion, an increase of 28.2%. The total
profit was RMB403.2 billion, an increase of 19.9%.
   In terms of the output of major products from January to
December 2006, in the 65 kinds of products with priority tracing,
61 kinds experienced growth over 2005, accounting for 93.8% and
there were 44 kinds with growth over 10%, accounting for 67.7%.
The output of natural gas, chemical fertilizers, pesticides,
basic chemical raw materials and synthetic resins saw a rapid
increase. The output of fuel oil and photographic film rolls
dropped, with the fall in the output of photographic film rolls
most prominent, being 94.9%.

    (2) Stable sales and price rise of most products

Stimulated by the sustained rapid growth of downstream sectors
such as the automobile, electronics, real estate and light
industry sectors, market demand growth was stable and overall
sales were relatively high. The product sales rate of the
petroleum and chemical industry reached 98.4% from January to
November 2006, basically equal to the same period of 2005. The
sales rate of the crude oil and natural gas exploitation sector
was 99.6%, equal to the same period of 2005. The sales rate of
the refining sector was 99.1%, a drop of 0.4 percentage points.
The sales rate of the chemical sector was 97.6%, an increase of
0.1 percentage points.
   The sales rate of major chemical sub-sectors was basically
maintained at 97%-98%. The sales rate of the two major
agrochemical sectors, namely the fertilizer manufacture and
pesticide manufacture, increased 1.18 percentage points and
0.54 percentage points respectively. The sales rates of the
specialty chemical sector and the rubber products sector were
stable and grew slightly.
   With impacts from various factors such as demand increase and
regional political risk, the crude oil price in the
international market rose further in 2006. The average price of
Brent crude oil spot goods was US$65.1 per barrel, an increase
of 20.1% over 2005.
   The chemical market experienced a rising trend in 2006.
According to statistics from CPCIA, among the 136 kinds of
products with priority tracing, 69 kinds saw a price rise,
accounting for 50.7% and 66 kinds dropped, accounting for 48.5%.
Pushed by the rising cost, the price of organic chemical products
and synthetic resins rose considerably. For example, the average
price of propylene was RMB10 469 per ton, an increase of 13.6%
over 2005. The average price of toluene was RMB8 078 per ton,
an increase of 17.6%. The average price of polypropylene was
RMB12 542 per ton, an increase of 11.1%. The prices of inorganic
chemical products, chemical fertilizers, rubbers and rubber
assistants fell. For example, the prices of sulfuric acid and
hydrochloric acid were down by 23.6% and 15.7% respectively. The
price of urea was down by 2.4%.

    (3) Sustained briskness of import and export trade

The import and export trade of the petroleum and chemical
industry maintained a rapid but slower growth in 2006. The total
import and export value attained by the petroleum and chemical
industry from January to November 2006 was US$224.39 billion,
an increase of 21.5% over the same period of 2005 and the growth
was 5.7 percentage points lower. As the import growth (23.3%)
was much higher than the export growth (16.9%), the unfavorable
balance was further widened and reached US$104.96 billion, an
increase of 27.2% and the growth was 13.8 percentage points
higher.

    (4) Considerable improvement of economic performance

The total profit realized by the petroleum and chemical industry
from January to November 2006 was RMB403.2 billion, an increase
of 19.9% over the same period of 2005. Price increases of crude
oil, natural gas, coal and power led to an overall cost increase
in the petroleum and chemical industry. As the cost transfer
ability was different with different products, there were
considerable differences in the economic performance of various
sectors. With the drastic oil price rise in the international
market, the profit of the crude oil and natural gas exploitation
sector further grew. The total profit in the sector reached
RMB350.85 billion from January to November 2006, an increase of
26.5% over the same period of 2005. Despite the readjustment of
the prices of oil products, in the face of sustained high oil
prices in the international market, the refining sector still
suffered losses. The total loss suffered by the refining sector
from January to November 2006 was RMB47.66 billion. The total
profit accomplished by the chemical sector was RMB96.84 billion,
an increase of 18.9%.

    (5) Rapid growth of fixed-asset investment

The fixed-asset investment of the petroleum and chemical
industry maintained a rapid growth in 2006. From the third
quarter of 2006 the government started to strengthen macro
control and contain the unduly rapid expansion of credit funds
and the growth of the fixed-asset investment tended to go down.
   According to the latest data published by CPCIA, the
fixed-asset investment made in the petroleum and chemical
industry from January to November 2006 was RMB443.26 billion,
an increase of 29.4% over the same period of 2005. Of that total,
investment in the chemical sector was RMB241.08 billion, an
increase of 26.5%.

    (6) Greater rationality of product portfolio

The readjustment in the petroleum and chemical industry achieved
satisfactory results and the product portfolio came more in line
with the market demand. The diesel/gasoline output ratio was
2.08 in 2006, being 0.04 higher than 2005. The proportion of
insecticides in pesticides reduced from 43.4% in 2005 to 40.4%
and the proportion of herbicides increased from 28.2% in 2005
to 30.1%. The proportion of nitrogenous fertilizers in chemical
fertilizers was down and the proportion of phosphate fertilizers
and potash fertilizers was up. The proportion of products with
low energy consumption or high quality grew further, with ion
membrane caustic soda and radial tires reaching 30.6% and 41.2%
respectively, increases of 2.8 percentage points and 3.8
percentage points. Some high-tech products such as
bio-pesticides developed rapidly.


2  Major problems

    (1) Capacity surplus of chemical fertilizers

With the large-scale investment and construction of recent years,
the production capacity of nitrogenous fertilizers and
phosphate fertilizers in China was already in surplus. The brisk
season of the chemical fertilizer market in 2006 was short and
the slack season arrived earlier than before. Prices in the brisk
season also failed to reach the level of 2005. The averag