Profits in the Chinese petroleum and chemical sectors plunged nearly15 percent in 2019 due to rising costs and weak markets, according to a report by the China Petroleum and Chemical Industry Federation. Photo: cnsphoto

Profits in the Chinese petroleum and chemical sectors plunged nearly15 percent in 2019 due to rising costs and weak markets, according to a report by the China Petroleum and Chemical Industry Federation (CPCIF) sent to the Global Times.

However, profits for 2020 in the petroleum and chemical sectors are expected to rise eight percent year-on-year. Although the industry is affected by the epidemic, Chinese experts expect profits to increase in the second quarter of 2020 with a prosperous market.

In 2019, the industries developed stably. Operating income slightly rose to 12.27 trillion yuan ($1.76 trillion), but profits hit 668.37 billion yuan, a decrease of 14.9 percent year-on-year, Fu Xiangsheng, vice chairman of the CPCIF, said during a Tuesday press conference. 

Operating income in the chemical sector hit 6.89 trillion yuan in 2019, that in the oil refining sector was 4.02 trillion yuan, and operating income of the oil and gas exploration and production sector reached 1.10 trillion yuan.

"With the economic structure continuously being optimized, the petroleum and chemical sectors demonstrated high-quality development trends," Fu said.

But total profits were reduced. For example, the profits of 1,124 oil refining companies above designated size hit 94.70 billion yuan, down 42.1 percent year-on-year. 

There were 23,335 chemical companies above designated size with total profit of 397.84 billion yuan, a year-on-year decrease of 13.9 percent.

Experts said prices in the petrochemical sector fell again in 2019 after rising for two consecutive years due to sluggish demand for refined products.

Fu said that unit costs in the petroleum and chemical sectors remained high. In 2019, operating costs rose by 3.1 percent year-on-year, 1.8 percentage points higher than the year-on-year increase in operating income, Fu added.

Experts also believe the huge trade deficit led to fierce competition in the domestic petrochemical market, thereby pushing prices down. Data show that the total imports of the petroleum and chemical sectors were $495.26 billion, more than two-fold compared to total exports, the report said.

Zhu Fang, director of the market and information department at the CPCIF, told the Global Times that the industry will rebound significantly in the second quarter of 2020 after the epidemic, although the industry was influenced by the COVID-19 outbreak due to suspended logistics, reduced production and sluggish demand.

Fu expects the operating income for 2020 of the entire industry will increase by about five percent year-on-year with total profits increasing by about eight percent. 

For future investment, analysts suggest investors should invest in new projects based on global market conditions, because domestic and foreign markets have been an indivisible and interactive organism.

For instance, the global para-xylene (PX) production capacity will be 64.87 million tons in 2020, but demand will be less than 50 million tons. With the global market saturated, new PX projects should be carefully assessed.

Fu added that the China-US trade war may ease in 2020, but friction remains. Therefore, the negative impacts of the trade war will continue to influence the domestic petroleum and chemical sectors.