Production cuts by Sinopec unsuccessful in raising domestic market outlook

21-Aug-08
Sinopec has embarked on a strategy to elevate market sentiments in China by introducing production cuts this month. This move, aimed to shrink polyolefins inventories through production cuts has been unsuccessful in elevating the market outlook. Most buyers are sceptical about the size of the cuts as comparable production cuts by Sinopec, for June and July failed to take off. Also, at present, inventories are piled high with the users. Two Sinopec subsidiaries, Qilu Petrochemical and Shanghai Petrochemical have shuttered a section of their operations - effecting a 7.3% and 3.7% reduction in Sinopec's total monthly polyethylene (PE) and polypropylene (PP) output. Hence a mere 10-20% cut is unlikely to leave a mark on the market where inventories were currently at a ballpark figure of atleast two times, and in some cases, three times above conventional levels. Other subsidiaries of Sinopec, expected to reduce operating rates include Maoming Petrochemical, Yanshan Petrochemical, Zhenhai Refinery and Chemical and Yangzi Petrochemical. On the demand side, market continues to witness lacklustre sentiments as buyers anticipate a further price reduction in line with falling oil and feedstock values, along with a global economic slowdown.
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