China’s southern island province of Hainan recently initiated five petrochemical projects, the latest in a string of manoeuvres in the country's sector. 

Hainan is aiming to make the province a key petrochemical production base by the end of the decade. Three of the five projects are set to be located in the island’s city of Dongfang, including an adipic dinitrile project designed to produce 300,000 tonnes per annum, with US-based Dupont and German BASF providing core technology, a methanol expansion project to raise the annual methanol production capacity of a project under construction to 1.80 million tonnes, and a LNG project capable of liquefying 3m tonnes of natural gas. China National Offshore Oil Corporation (CNOOC), one of China’s biggest three oil companies, is to participate in the latter two projects in Dongfang City.
The remaining two projects are a para-xylene project and a purified terephthalic acid project that will be situated in the Yangpu Industrial Zone, and have a yearly output capacity of 600,000 tonnes, according to the Hainan Government’s website.
Hainan Province covers 2.10m sq km of water in the South China Sea, where it is estimated up to 30 billion tonnes of crude and 15 trillion sq meters of natural gas are contained. To date, all the big three oil companies, including Sinopec and CNPC, in addition to CNOOC, have invested in this sector of the province. According to Zhongguo Shiyou Wang (China Oil News), the province will shift more projects to Dongfang City and the Yangpu Industrial Zone, promising to offer a dozen downstream oil products projects to attract more investors in the middle of the month, when the Pearl Delta Region Trade Fair is to kick off.

Asset swap imminent
Sinopec is to conduct an assets swap in its Shenzhen-listed petrochemical subsidiary, namely the China Wuhan Phoenix Co., Ltd (CWP), marking a step further to push forward its domestic integration as it promised in 2000. According to an announcement by CWP, Sinopec is to sell off its 211m A-shares in the company, amounting to 40.72 per cent of the total, to two power producers, the Hubei Qingjiang Investment Corporation (HQIC) and the China Guodian Corporation, for RMB 620m ($74.91m) at RMB 2.94 ($0.355) per share. And, Sinopec will purchase petrochemical assets from CWP for RMB 548m ($66.21m).
Last year, CWP produced 998.86m tonnes of polypropylene and 1,781.05m tonnes of liquefied petroleum gas (LPG), earning net profits of RMB 54.60m ($6.60).
Following the swap, HQIC and China Guodian are to possess stakes of 25.45 per cent and 15.27 per cent in CWP, making them the two biggest shareholders. To complete the swap, they are to jointly inject the new subsidiary with a 252,000 kW hydropower station, located in the Qing River running in the city of Yidu in central China’s Hubei Province, which is 62.5 per cent and 37.5 per cent owned by the HQIC and China Guodian.
Four years ago when Sinopec was listed in London, New York and Hong Kong, it has promised investors that it would reshuffle its domestic assets into 13 listed vehicles, including two oil and gas producers, nine petrochemical units and two sales branches. In 2002, a similar asset swap deal at the former petrochemical producer Hubei Xinghua was made between Sinopec and the State Development and Investment Corporation. Zhongguo Zhengquan Bao, the official securities newspaper, believes that the swap will help Sinopec reduce the number of connected transactions with its branches, as well as optimize its industrial product chain and strengthen its competitiveness.

Petchem production up
China also experienced petrochemical growth through state firm PetroChina who said its petrochemical products production in the first six months of 2004 rose 5.76 per cent on the year to 4.36 million  tonnes. According to an unaudited January-June 2004 production and operation report released by the company, PetroChina’s ethylene output jumped 6.1 per cent to 922,000 tonnes, synthetic resin rose 17.11 per cent to 1.28m  tonnes, synthetic fiber inched up 1,000 tonnes to 111,000 tonnes, and synthetic rubber gained 18.75 per cent to 133,000 tonnes.
Production of urea however slipped 1.35 per cent to 1.9m  tonnes in the first half. Quarterly comparsion showed most of the company’s petrochemicals output in the April-June period registered decline from the January-March quarter. Q2 ethylene production slipped 8.32 per cent from Q1 to 441,000 tonnes, synthetic rubber fell 5.3 per cent to 626,000 tonnes, synthetic fiber dropped 5.26 per cent to 54,000 tonnes and urea down 1.67 per cent to 943,000 tonnes.
Synthetic rubber was the only item that showed a rise in output during the quarters, climbing 1.52 per cent to 67,000 tonnes in Q2.
PetroChina’s refinery, the Shenzhen-listed Jinzhou Petrochemical Co., Ltd, also witnessed a year-on-year surge of 337.60 per cent in net profits for the first half of the year as a result of the domestic oil price rise over the period. In the past six months, a total of 3.02m tonnes of oil was processed by the company, 18.27 per cent more than the same period of last year. Moreover, in the period, gasoline and diesel prices rose RMB 378 ($45.67) per ton and RMB 181 ($21.87) per ton respectively, giving the company a larger profit margin. Thanks to the price surge, the company saw its net profits hit RMB 146.157m ($17.66m) compared to RMB 33.40m ($4.04m) during the same period of last year. However, the crude oil price, also rising in the period, creates uncertainties for the company over the rest of the year. The average price for crude oil rose by RMB 148 ($17.88) per ton year-on-year in the first half.

Capacity hike
China also received a boost as Jilin Petrochemical Corp has raised its refining capacity 17 per cent through de-bottlenecking its No. 1 crude distillation unit, a company official said.
Jilin’s No. 1 CDU now has a capacity of 4 million metric tonnes a year or 80,000 barrels a day, bringing the company’s total refining capacity to 7 million tonnes per year or 140,000 bpd, he said.
For July, Jilin has raised its crude runs 38 per cent from June to 570,000 tonnes or 139,270 bpd.
The company mostly processes Daqing crude and imported crude from Russia.
Jilin Petrochemical, located in northeastern China’s Jilin province, is a unit of PetroChina Co. (PTR).