Hard Year
Year:2009 ISSUE:1
COLUMN:EDITORS NOTE
Click:345    DateTime:Jan.04,2009
Hard Year     

2008 may be the most startling year in the past decade for chemical players. Sharp fluctuations showed by the crude oil price would undoubtedly have surpassed the predictions for many analysts, chemical prices showed a more astonished free falling. Managers and traders have doubted that the ceiling prices ever reached in the summer would have been a dream instead of a reality. Both the abrupt price falling and 50% or lower operation rate have indicated 2009 will be a hard year.
   Li Rongrong, the head of the State-owned Assets Supervision and Administration Commission (SASAC) recently asked the managers of 143 affiliates try their best not cutting job. SASAC controls 143 key state owned enterprises, including the petrochemical industry's top five - Sinopec Group, CNPC, CNOOC, Sinochem, ChemChina. SASAC has remained net profit for five consecutive years since 2004, but it is predicted to be hard in remaining net profit in 2009. According to SASAC's report in December, the 143 enterprises totally achieved a net profit of RMB683 billion in the first eleven months of 2008, a year over year drop of 26% or RMB239.4 billion. In the same period these SASAC companies reported a sale of RMB10 800 billion, a yearly growth of 20.2%. There are three challenges for these central government owned enterprises to manage, Li pointed out. The first, the growth rate fell substantially, sale is blocked with the increased inventory. The second, the net profit earned in the first half year was being offset drastically and some companies suffered loss. The third, the debt/asset rate in some SASAC companies climbed up while the cash deposit moved down. A few companies face a huge debt risk due to over fast expansions.
    As to chemical sectors, the chlor-alkali makers reported a big drop in operation rate - around 30%. The operation rate for calcium carbide makers was reported to be 30%. More worried and bothered are those companies that bought raw materials at a pike price but now must sell their products well below the cost. For example, the imported sulfur price averaged around US$500/t in the first half, but fell to US$157/t in November. It was predicted that China's phosphate fertilizers makers totally had a sulfur stock of 1.5 million tons as of the end of October.   
    The government's securing action now is considered by public as a fear sign rather than a good one. Analysts gave a better project on the sectors that are related to agriculture, such as pesticides, chemical fertilizers. Will the government's securing package really play an important role in recovering the public confidence?

Zhong Weike
December 29th, 2008