Written on 31.10.2012 - Industry
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FAR EAST: SK Innovation to bask in Sinopec's halted paraxylene plant

Korea's top refiner SK Innovation Co. could benefit from a Chinese state oil firm's decision to scrap a petrochemical plant in eastern China as it stands to enjoy higher margins, a report said Tuesday (30 Oct. 2012).

Bank of America Merrill Lynch said in the report that SK Innovation, along with Japan's JX Nippon Oil & Energy Corp., will likely be the biggest beneficiaries of the recently canceled plan to build a new a paraxylene plant in Ningbo.

Thousands of people marched through the city over the weekend to protest against the expansion of a petrochemical factory owned by China Petroleum and Chemical Corp. (Sinopec), the country's biggest oil refiner.

The protesters argued that the plant to produce paraxylene, a flammable, carcinogenic liquid used in polyester, would cause pollution in the city. Sinopec's existing plant in Ninbo already produces 500,000 metric tons of the product each year.

Following the protests, which swelled to clashes between citizens and police, the Ningbo government said it will scrap the 55.8 billion yuan ($8.8 billion) project.

"We cautiously reckon there may potentially be pressure on various other paraxylene projects in China," said Kenneth Whee, a research analyst at Bank of America.

"Indeed, plans to build a paraxylene plant in the northeastern port of Dalian were also shelved in August last year following public demonstrations."

Profit margins for paraxylene outputs may stay higher for a longer period, compared with other
commodity chemicals, due to a dearth of capacity expansion, the U.S. investment bank said.

Currently, the margin for paraxylene per metric ton is as high as $500.

SK Innovation is estimated to have an annual production capacity of 750,000 metric tons of paraxylene under its petrochemical wing SK Global Chemical Co., being Asia's ninth-largest paraxylene producer.

It is likely to jump to the fifth when a 50-50 joint plant with JX Nippon is completed in 2014. The new plant is expected to raise SK Global Chemical's annual production of paraxylene to 1.5 million metric tons.

Sinopec is currently the largest paraxylene producer in Asia with 3.6 million metric tons, followed by JX Nippon with 2.5 million metric tons.

Source: Daily "The Korea Times", Seoul, through Yonhap News Agency; 30 Oct 2012

(Syed Rashid Ali, Karachi, Pakistan)