Petrochemical Industry Expected to Slow Down

China's petroleum and chemical industry is expected to grow at a slower pace this year, dragged down by the losses in oil refinery businesses and weakening raw materials demand from export-oriented sectors, an industry federation said Monday.

The industry's total output is expected to reach 12.73 trillion yuan ($2 trillion) in 2012, a 14.5 percent increase year-on-year, according to the China Petroleum and Chemical Industry Federation (CPCIF). The sector saw growth of 31.5 percent year-on-year in 2011.

The industry's profits are likely to amount to 860 billion yuan in 2012, up 5 percent from a year earlier.

The industry is facing downward pressure, due to sluggish demand from export-oriented sectors such as textiles and toy manufacturing, as well as rising production costs, a growing tax burden and large-scale losses in the refinery and natural gas sectors, said Li Yongwu, chairman of the CPCIF.

The refinery sector lost 16.6 billion yuan in the first five months of 2012, according to the federation.

However, Li said a recovery in the domestic economy will boost demand for petroleum and chemical products in the second half of this year.

"High crude prices in the first quarter of this year were the major reason behind refineries' losses," said L¨1 Bin, an industry analyst at Sublime China Information Co.

"The refinery sector will have better performance in the third quarter, because of the lower-price crude oil that it purchased in May and a potential rise in retail oil product prices," he said.

Analysts expect China will raise fuel prices later this week following three consecutive cuts earlier this year.

"Fuel prices may be increased by 400 to 420 yuan per ton as early as Thursday, given the recent hike in international crude oil prices," Liao Kaishun, an analyst at CI Energy, told the Global Times.

Meanwhile, the country's dependence on imported crude oil increased in the first half, with the ratio of imports to total consumption reaching 59.4 percent, up from 57.3 percent in 2011, according to the CPCIF.

China's oil import dependence rose above the generally recognized warning line of 50 percent for the first time in 2009 and has continued to rise, threatening the country's energy security, experts said.

The increase in imports in the first half is partly due to China's desire to boost its oil reserves, the CPCIF said. The country aims to boost its strategic oil reserves to 503 million barrels, equivalent to 90 days of consumption, by 2020.

"China boosted its stockpiles also because of concerns about Western sanctions on Iran," L¨1 said.

He predicted the dependence on imports will continue to increase, as growth of domestic oil consumption outweighs that of domestic production.

But L¨1 said that with China's exploration of oil resources in the South China Sea, the level of dependence will stop rising. "The country's dependence on imported oil might reach its peak by 2020," he noted.