Gloomy state of petro and petrochem industry in China

The state of China’s petro and petrochem industry is still gloomy as per the July production data from China Petroleum and Chemical Industry Association. In July, 33,796 large-scale enterprises in the industry achieved industrial production value of 571.41 billion yuan (US$83.6 billion), a 3.7% decrease over June and 8.6% less than the same period of last year, lagging behind the national average increase of 4.5% year on year. In the first 7 months of this year, the industry raked in 3.5 trillion yuan of industrial production value, 10.3% less than the same period last year. Though the decrease rate is 0.3 percentage points less than that during the first half-year period, further hard times are still expected before industrial recovery. Breaking the figures down by sector, the exploration and the refining sectors present a better performance than the chemical industry thanks to the rising prices of oil, gas and oil products. The production value earned by the oil and gas exploration industry in July reached 68.85 billion yuan, a surge of 15.97% over the previous month or 6.1 percentage points more month on month. The refining industry achieved 157.48 billion yuan, an increase of 4.27%, about the same growth rate as the previous month. However, in July the chemical industry saw a month-on-month decrease in production value for the first time, recording a figure of 331.64 billion yuan or 9.6% less than the previous month. By production, the oil, gas and oil products output in July was on the rise, while chemicals production suffered a big decrease. In July, the industry produced 16.143 million tons of crude oil and 7.07 billion cubic meters of natural gas. Both the cruderun, or the processing volume crude oil, and oil products production hit all-time highs of 33.113 mln tons and 20.607 mln tons, respectively. Chemicals production, however, almost all saw a fall except for ethylene, soda, polyethylene and polypropylene.While 80% of crude oil and oil products saw prices rise month on month in July, only 39% of chemical products enjoyed a price increase. As for the outlook for the industry, there are four factors that may hinder the industrial recovery: The weak downstream demand still continues, which can be seen from the apparent decrease in the sales of oil products in July while the inventories has been climbing. Exports may continue to be gloomy. In July, the value of exports delivered was 3.017 billion yuan, a dip of 2.1% from the previous month but a plunge of 22.3% year on year. The figure in the first 7 years fell by 23.5% year on year. Overcapacity and overheated investment both continue to grow. The data shows that during the first seven months the fixed asset investment in the petroleum and petrochemical industry increased by 13.51% yoy to 515.08 billion yuan. The investment in the chemical industry, in particular, is up by 29.71%, with investment in the sectors of inorganic acid, fertilizer, pesticide, rubber product and phosphate fertilizer rising by 43.37%, 36.23%, 40.66%, 38.18% and 97.12%, respectively. The poor operational quality of the enterprises has also hit profits. Until the end of July, the operational rate of most chemical enterprises stood at 70 to 80 per cent, due to higher costs for materials purchases.