Sinopec Said to Keep Refining Target Flat Amid Fuel Surplus

Updated on
  • Asia's biggest refiner faces weak demand, growing competition
  • Target to stay flat after rising every year for a decade

China Petroleum & Chemical Corp., which increased refining every year for at least a decade, may keep its oil-processing target unchanged for next year because of waning demand and increasing competition.

Sinopec, as Asia’s biggest refiner is known, informed its refineries that the company won’t raise its target and asked them to make their annual plans accordingly, according to people with knowledge of the matter, who asked not to be identified because the information isn’t public. The company said in March it will refine 243 million tons this year, or 3 percent more than 2014.

Sinopec has raised its refining volume each year since 2005, when Bloomberg began to compile the data. Slowing growth in the world’s second-biggest oil user has crimped demand for oil products and led to swollen inventories and record diesel exports. In addition, smaller private refiners are taking market share from state-owned giants.

The annual target serves as a planning guide and regional factories still have the freedom to change refining plans based on their specific market conditions on a quarterly basis with the company’s approval, according to two of the people.

The plan may not get announced until January, when Sinopec’s state-owned parent holds its annual work conference in Beijing, according to the people. A Beijing-based spokesman at Sinopec said the company has no comment on the matter.

Sinopec shares dropped 0.4 percent in Hong Kong to close at HK$5.53, compared with a 1.2 percent decline in the city’s benchmark Hang Seng Index.

‘Snatching Share’

“On one hand, we have very weak diesel demand amid a slowing economy and on the other, teapots are snatching market share after operating rates soared with new access to import quotas,” said Gao Jian, an analyst at SCI International, a Shandong-based energy consultant. “Sinopec seems to have no other choice but to reduce oil processing, there’s simply no market to sell extra fuel.”

China more than doubled the crude imports quota for non-state companies in 2016 after granting 11 independent refiners, known as teapots, direct quotas to import crude oil. Operating rates at teapots rose to 45 percent as of Oct. 30, the highest since 2012, according to industry website Oilchem.net.

The world’s second-largest economy grew 7 percent in each of the first two quarters of 2015, in line with the government’s goal for the year, before slowing to 6.9 percent in the third quarter. To keep growth on track, the People’s Bank of China cut benchmark interest rates six times in the past year, to a record low of 4.35 percent.

‘Moderately Prosperous’

China needs an average GDP growth of about 6.5 percent in the next five years to meet its goal of achieving a “moderately prosperous” society by 2020, Premier Li Keqiang said last week.

The nation’s apparent oil demand fell by 1.79 percent in September, the least since July 2014, according to data compiled by Bloomberg. Diesel exports jumped to a record 1.11 million tons in September as refiners sought to lower stockpiles amid slowing industrial expansion, according to data from the General Administration of Customs. The nation’s crude inventories increased to 34.31 million metric tons in October, the highest in eight months, according to data from Xinhua News Agency’s China Oil, Gas & Petrochemicals newsletter.

Sinopec’s total refining volume rose 1.4 percent to 178.3 million tons in the first nine months of the year, according to its third-quarter earnings statement.

— With assistance by Sarah Chen, and Guo Aibing

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