Sinopec unit gets $336m subsidy for refining loss

Sinopec Shanghai Petrochemical Co received over 2.3 billion yuan ($336 million) in subsidy from the Chinese government in 2008 to help offset refining losses caused by low state-set fuel prices.

President Rong Guangdao declined to say how large a loss it incurred last year, but said on Sunday the subsidy normally accounted for less than half of refining losses.

"My feeling is that refiners' profit margin is now guaranteed under the new fuel pricing mechanism if crude oil prices are below certain levels," Rong told reporters on Sunday on the sidelines of China's annual legislation meeting. "But they may still face losses if crude oil prices are too high."

China introduced a fuel pricing scheme in December which stipulated that Beijing will consider crude oil costs, refining margin, market demand and supply as well as other factors when setting refined oil products prices.

Analysts said the scheme was similar to an older one that had never been followed in practice, with the market unsure about when and by how much prices are changed.

"We hope to see a more transparent and market-based pricing mechanism," Rong said.

Sinopec Shanghai, controlled by Asia's top refiner Sinopec, has refining capacity of over 200,000 barrels per day (bpd) and its major crude facilities feed its downstream petrochemical business.

Sinopec Shanghai has two ethylene crackers with stated capacity of 850,000 tonnes per year although actual production could reach 950,000 tonnes.

Rong said the National Development and Reform Commission had approved its plan last year to build a new 600,000 tonne ethylene cracker while mothballing its smaller existing unit which has capacity for 150,000 tonnes. The company has yet to start construction due to weak demand.

It has also postponed completion of two petrochemical facilities, including one 600,000-tonne paraxylene unit costing around 3 billion yuan, to the second half of this year from the first half due to low product prices.

"The prices of paraxylene have recovered a bit recently to nearly $900 a tonne, still less than half of the highest of some $2,000 in last year," Rong said.