China oil refining profits plunge 42% in 2019 as overcapacity grows

[BEIJING] Profit margins in China's crude oil refining sector plunged 42 per cent in 2019 from a year earlier, the steepest fall in five years, an industry body said on Tuesday, warning that overcapacity is a growing problem.

Some small and medium-sized refineries were also likely face financial pressure from a fall in sales and a rise in inventory amid the coronavirus outbreak, the China Petroleum and Chemical Industry Federation (CPCIF) said, but the impact would be mainly felt in the first quarter.

"For the full year and longer term, overcapacity will still be the dominant issue in the industry," CPCIF vice-chairman Fu Xiangsheng said at a press briefing.

Increasing capacity in China and weak domestic demand, fuelled in part by the Sino-US trade war, led to a surge in refined product exports to the rest of Asia in 2019, helping to depress prices across the region.

China, the world's top crude oil importer, boosted its annual crude oil refining capacity by 3.4 per cent in 2019 to 860 million tonnes, equal to 17.2 million barrels per day.

It is is expected to add another 27 million tonnes, or about 3.1 per cent, of refining capacity in 2020.

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"We have growing concerns over the overcapacity issue," Mr Fu said. "With the launch of the integrated refining projects, production and sales rose but profits fell."

China's crude oil throughput rose 7.6 per cent to a record 651.98 million tonnes in 2019, while gasoline exports surged by nearly a third.

Still, average utilisation rates at Chinese refineries were at 76 per cent in 2019, below the global level of 80-85 per cent and pointing to a capacity glut.

Profit margins in the petrochemical sector fell 13.9 per cent in 2019 from a year ago, the biggest hit since 2008.

The total profit for China's petroleum and chemical industry, which also includes fertilisers and other sectors, was 668.37 billion yuan (S$133.38 billion) in 2019, down 14.9 per cent from 2018 level, according to CPCIF.

Despite the increased integrated refining capacity, the industry body warned China still faced shortages of some high-end chemical materials such as synthetic resin and polycarbonate.

Meanwhile, banks are suspending credit lines for some Chinese independent oil refineries amid rising concerns about overall industrial defaults and as the virus outbreak eats into fuel sales.

The flu-like outbreak has killed 2,943 people and infected more than 80,000 in mainland China as of Monday.

REUTERS