Oil Report

UPDATE 1-China vows to downsize oil refining, metal capacity

* To cut oil processing plants less than 20,000 bpd by 2011

* Ban new projects built to process bitumen or heavy oil

* To cut further 72 mln T pig iron capacity by 2011

* Remove 300,000 T obsolete copper smelting capacity by 2009

* Mothball 600,000 T lead smelting, 400,000 T zinc capacity (Adds industry, analyst comment; steel, metals downsizing)

BEIJING, May 4 (Reuters) - China vowed on Monday to downsize some of its outmoded oil refining, steel and metal production plants, as oversupply raised challenges while demand for fuel and industrial products weakened due to its slowing economy.

But analysts said the policy, which targets some 4 percent each of China’s crude steel making and aluminium smelting capacity, and oil plants under 20,000 barrels per day, could prove toothless as industries strive toward profits.

China aims to get rid of oil processing plants that are smaller than 20,000 bpd by 2011 and take measures to encourage the closure, merger or transformation of refining units with capacities of 20,000-40,000 bpd ones, the National Development and Reform Commission said on its website (

The plan, tough to implement as most of the small plants are key earners for local governments, will allow plants larger than 20,000 bpd to operate legitimately. These larger plants make up the majority of independent fuel producers that together supply nearly 20 percent of the world’s No. 2 oil user.

“The policy could be a blessing in disguise for the small plants by forcing them to upgrade and legalise the league of above 20,000-bpd for now,” said a Beijing-based oil trader who deals with these small plants, most of which are located in eastern Shandong and southern provinces.

“The government has been trying to eliminate low-efficient small refineries for a long time. These firms contribute to creating jobs and enhance local economic growth,” Jiang Xinmin, an analysts at Energy Research Institute of NDRC.

The government will also ban new refining projects that are built to process bitumen or heavy oil, a move that will curb in the longer run China’s imports of fuel oil, a main feedstock of existing small plants.

Regions that shut down small refining facilities will be allowed to build bigger refining projects with a total capacity equal to those being closed, the commission said.


The NDRC said it would also remove 300,000 tonnes of obsolete copper smelting capacity by 2009, roughly 9 percent of the country’s total, a move which is likely to tighten supply of the base metal China is short of.

But analysts questioned the implementation of the mandate as local governments are now keen to restart metals capacity to boost sagging local economic output.

“China resets its schedule to cut outdated capacity. The country failed to meet its goal in downsizing steel and some metal sectors in the past years, as mills ignored administrative orders to pursue hot profits,” said Jiang Qiu, analyst at Guotai & Junan securities.

The planning body also said it would mothball 600,000 tonnes of lead smelting capacity and 400,000 tonnes of zinc capacity by 2009. It targets to switch off 800,000 tonnes of aluminium capacity by the end of 2010.

China, the world’s largest steel maker, aimed to remove outdated pig iron making capacity of 72 million tonnes and crude steel making of 25 million tonnes by 2011, roughly 11 percent and 4 percent of China’s total respective capacity.

China’s steel sector, with rampant growth fuelled by an economic boom that ran out of steam in the past few years, saw its total capacity exceed 600 million tonnes at the end of 2008, when it only produced 500 million tonnes due to weak demand.