Q1 China report shows oil and petrochemical challenges

A new report from the Shanghai Lubricant Trade Association (SLTA) looks at some of the challenges faced by the oil industry.

According to the report, China’s oil companies are facing a number of economic, technical and competitive challenges both at home and abroad. The most noticeable causes for a slowdown in refining and sales are the slow economic recovery in the Eurozone and the US.

One of the main issues faced by Chinese producers today is sluggish demand for petrochemical products, combined with the need to meet an increasingly diverse set of consumer needs. Many producers are operating at a fixed capacity, which makes it difficult to produce new advanced petrochemical products.

Domestic competition, caused by massive overproduction, is also becoming increasingly problematic. According to the report, many plants to produce low-value items, such as PVC and methanol, are still under construction, leading to intense competition. Many of these producers are often employing older technology and failing to responding to industry advances fast enough - according to the SLTA.

Chinese firms are also failing to develop a solid export base for their products. In 2012, oil and petrochemical exports provided 8.5% of total market value, down 3.1% on 2008, suggesting a general decline. First quarter, 2013 year-on-year exports are also down 0.4% from 2012.

Naturally, sluggish global growth will play a large part in slowing exports. However, the report suggests that plant and technology upgrades would be a good thing for several reasons; keeping up to speed with government legislation, diversifying themselves from competition, and increasing their product range, which would also have the combined effect of expanding their export opportunities.