Will expanding capacity help Sinopec reduce cost pressures?

Sinopec Jinling, a unit of the nation's largest oil refiner, will expand its crude refining capacity by 33 percent by 2010, as demand for fuels rises in the world's fastest-growing major economy.

The refinery at Nanjing in the eastern province of Jiangsu will be able to process 18 million metric tons of crude oil by 2010, from the current level of 13.5 million tons, Zhang Dafu, chairman of Sinopec Jinling, said in Beijing today.

China, the world's second-biggest energy-consuming nation, plans to increase oil-refining capacity by 25 percent by 2010. The economy expanded 11.4 percent last year, boosting demand for fuels and chemicals from PetroChina Co. and China Petroleum & Chemical Corp., also Asia's largest refiner.

Sinopec Jinling plans to boost its oil processing volume by about 6 percent this year, Zhang said. “More than 80 percent of our crude is imported, and most of the overseas purchases are heavy oil from Saudi Arabia.”

The refinery plans to shut about one-third of its capacity in April and May for maintenance, which will last 30 to 45 days, Zhang said.

China controls fuel prices to shield consumers in the world's most-populous nation from inflation. That limits the ability of PetroChina and Sinopec, as China Petroleum is known, to pass on the rising cost of crude oil, their main raw material.

Sinopec Jinling may lose 1.5 billion yuan ($211 million) in the first quarter, compared with a profit of 80 million tons last year and a loss of 1.4 billion yuan for the whole of 2006, he said.

Sinopec Jinling may have a profit margin of 5 percent in fuel sales if crude oil prices are $65 a barrel, Zhang said.

The parent company Sinopec said on March 5 it is facing “extremely high” pressures from rising costs caused by record high crude oil prices.

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