Sinopec braces for cheap U.S. petrochemicals

HONG KONG, March 25 Mon Mar 25, 2013 8:12am EDT

HONG KONG, March 25 (Reuters) - Sinopec Corp, Asia's largest refiner, will strive to lower its petrochemical production costs and optimize its product mix to meet the threat of cheap rival U.S. supply in the future, a top executive said.

A boom in production of U.S. shale gas, which can be used as a feedstock to produce petrochemicals, has spurred huge investment interest in the petrochemical industry there.

"U.S. shale gas contains lots of components that can help petrochemical producers significantly lower costs. This is something that we did not expect before," Wang Tianpu, Sinopec's vice chairman and president, told reporters on Monday at the firm's results briefing.

The U.S. petrochemical industry is increasingly shifting away from oil-derived naphtha as its major feedstock and is investing billions of dollars on plants that run on ethane, made from shale gas.

Dow Chemical Co said earlier this month it planned to build several plants on the U.S. Gulf Coast to take advantage of cheap shale-derived gas to produce plastics used in areas such as transportation and telecommunications.

Sinopec Corp , whose petrochemical business has already been suffering from competition with cheap supplies from the Middle East, is seeking to minimise the use of naphtha as a feedstock to cap costs, Wang said.

"We have been using naphtha as the main feedstock, which is making our petrochemical business struggle," he said.

The state giant has also been seeking to make more products with higher added value and aggressively expand its coal-to-chemicals business as part of efforts to improve the competitiveness of its petrochemical business, Wang said.

Sinopec, formally known as China Petroleum and Chemical Corp, on Sunday reported a 12.8 percent fall in 2012 net profit due to a drop in revenue from its upstream and chemical businesses.

Its chemical business made an operating profit of just 367 million yuan ($59.1 million) last year, versus 25.3 billion yuan a year earlier, due partly to a sharp fall in product prices as a result of China's economic slowdown.

China is Asia's top importer of petrochemicals.

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