US$336 mln subsidy for Sinopec unit to offset refining losses caused by low state-set fuel prices

09-Mar-09

Sinopec Shanghai Petrochemical Co has received over 2.3 billion yuan (US$336 mln) in subsidy in 2008 to help offset refining losses caused by low state-set fuel prices. Though the exact extent of losses incurred last year are not known, the subsidy normally accounted for less than half of refining losses. China introduced a fuel pricing scheme in December which stipulated that Beijing will consider crude oil costs, refining margin, market demand and supply as well as other factors when setting refined oil products prices. Analysts said the scheme was similar to an older one that had never been followed in practice, with the market unsure about when and by how much prices are changed. Companies hope for a more transparent and market-based pricing mechanism. Sinopec Shanghai, controlled by Asia's top refiner Sinopec, has refining capacity of over 200,000 bpd, 2 ethylene crackers with stated capacity of 850,000 tpa. The National Development and Reform Commission has approved its plan last year to build a new 600,000 ton ethylene cracker while mothballing its smaller existing unit which has capacity for 150,000 tons. Construction has been postponed due to weak demand. Completion of two petrochemical facilities, including one 600,000 tons paraxylene unit costing around 3 billion yuan, has been postponed to H2-2009.