Exports and Prices Remained Falling   

By Feng Shiliang, CPCIA

China's petroleum and chemical industry still operated at a valley stage in May, with a narrowed production decline, China Petroleum and Chemical Association (CPCIA) says. The domestic demand for some major products were expanding, the prices of some chemicals picked up obviously, and the investment on new construction projects grew steadily. CPCIA comments the situation is better than expected for the whole industry.
    In the report of CPCIA, the designed companies in the petroleum and chemical industry achieved a combined production value of RMB538.34 billion in May, a drop of 7.2% year on year, and an increase of 7% over April. In which, the chemical sector has remained a positive growth for four consecutive months, reporting a 2.6% gain year on year and a growth of 4.5% month on month, the oil and natural gas exploration sector suffered a decline of 41.1% year on year, and grew by 6.6% over April, and the refining sector posted a year on year drop of 10% but a month on month growth of 12.4%.
   The cumulative production value in the period of January to May was RMB2 300 billion, a drop of 11.2% over the year ago period, compared to the 12.4% drop in the first four months.
    Among the 62 petroleum and chemical products tracked by CPCIA, 42 enjoyed an output growth in May, representing a good sign. The crude oil output was 16 million tons, down 1.1%. In May China processed 31.19 million tons of crude oil with a year on year growth of 10.7%, and produced 19.34 million tons of oil products (including gasoline, kerosene and diesel), up 16.7%. Chemical fertilizer output increased 13.6%, while pesticide output plunged by 0.2%. Driven by the high increase (29% in May) of automobile production, the tire production hit a year to date high with a year on year growth of 21.1%, compared with the 13.7% growth in April. The output of synthetic resins increased 3.7% year over year, with synthetic fiber polymers growing 24.6%, sulfuric acid 11.6%. The output of ethylene, soda ash and caustic soda declined by 6.3%, 2.8% and 1.2% respectively.
   According to the data of CPCIA, the demand for agrochemicals, organic chemicals and synthetic materials has grown for the first four months of this year. The apparent consumption of chemical fertilizers in the first four months increased 18.2% compared with the same period of 2008, with methanol surging by 51.5%, pure benzene 14.2%, polyethylene 18.8%, polypropylene 16.1%, polyvinyl chloride 13.5%, synthetic rubber 18.7%, polyester 10% and tire 31.2%.
    An official report disclosed that the sale amount of oil products continued to pick up in May, reaching 18.33 million tons with a slight drop of 0.2% over the year ago period but increasing 2.3% on the preceding month. In which, the sale of diesel was 11.945 million tons, down 1.5% year over year, while that of gasoline grew by 2.9% to 5.607 million tons. As of May 31st, total oil products amount in stock increased by 36.1% over one year ago, 2.1% over one month ago.
    In the first five months, the investment poured into the petroleum and chemical industry was RMB290.66 billion, growing 19.16% over one year earlier, compared with the 15.66% growth in the first four months. In which, the chemical sector shared a 31.7% gain, the oil and natural gas exploration sector grew by 4.6% whilst the refining sector dropped by 11.2%.
    CPCIA gave three comments in its report.

A. Demand for petrochemicals is still in recession, with the falling trend for price not ceasing.

In May the sale in the petroleum and chemical industry declined 7.5% year over year, and the sale/production ratio was 97.4% compared with 98.7% in April. The railway administration reported that the transported crude oil amount by railway fell 10.7% in May, with agrochemicals falling 18.6%, chemicals 6.1%.
   The National Bureau of Statistics announced the price index of more than 1 000 petrochemicals in May fell 17.86% compared with the same period of 2008 while the drop in April was 18.38%.

B. Exports situation is still hard whilst the imports for some petrochemicals have been increasing.

The value of exported goods for the petroleum and chemical industry fell 17% in May, including the influence of prices. The drop accumulated to 22.8% in the period of January to May, in which, the basic chemical raw materials suffered a cumulative drop of 32%, chemical fertilizers 37.8%, pesticides 32.4%, coatings/pigments 42.4% and rubber articles 14.2%.
    The imports of some organics and resins have rocketed since January, on the support of low price. For instance, China imported cumulatively 2.9 million tons of methanol in the first five months, being 8 times that in the same period of 2008, while the domestic methanol output declined by 11.2%. Polyvinyl chloride is also a similar example.

C. Differential overcapacity is serious

Calculating on the output in May, the average operation rate for China's ethylene crackers was 85.1% in the month, with soda ash being 82.1%, caustic soda 79%, calcium carbide 68.8%, polyvinyl chloride 58%, methanol 40.6%, phosphate fertilizers 50%, refinery 84%. In the first five months, the investment in new constructions of phosphate fertilizer surged by 112% over the year-ago period, well higher than the 30.2% average growth for the whole fertilizer sector. Similar situation happened to methanol.