Sinopec–BASF JV Expansion Approved
Earlier today, China ’s state-controlled petroleum refiner China Petroleum and Chemical Corporation – also known as Sinopec (SNP) – announced that the Chinese Government has approved the feasibility study report on the expansion of its joint venture with German chemical giant BASF AG.
The companies will increase investment in their joint chemical site in China’s Nanjing city by 56% to $1.4 billion. The spending, which was earlier pegged at $900 million, was boosted because of higher costs, appreciating currency and adjustments to the capacity of the project.
The project will use sophisticated technology to produce downstream specialty chemicals serving the construction, electronics, pharmaceutical, automotive and chemical engineering sectors. In particular, it will expand an existing steam cracker’s annual capacity by 23% to 740,000 metric tons.
Additionally, the joint venture will build ten new petrochemical plants and expand three existing ones. Start-up of the expanded complex will begin in phases from 2011. Founded in 2000, the facility in Nanjing is one of the largest Sino-foreign petrochemical joint ventures in China . It is operated by BASF-YPC Co (BYC), a 50-50 venture between Sinopec and BASF.
The expansion will broaden the investment terms of the existing $2.9 billion chemical plant in Nanjing, which started commercial production in 2005. It will also help the partners to meet growing demand from various industries. In particular, the expansion of BYC underscores Sinopec’s long-term commitment to China’s growing chemical market in the Eastern region.
With its head office in Beijing, Sinopec is one of the largest petroleum and petrochemical companies in Asia. It is the second largest crude oil and natural gas producer, besides being the largest refiner and marketer of refined petroleum products in China.
While we continue to believe that the BASF agreement will help expand margins and broaden Sinopec’s product portfolio, rising costs and special levies on domestic crude oil sales — as well as downstream-centric assets — remain our chief concerns. As such, our Hold recommendation for Sinopec stays unchanged at this stage.
Our preferred play in the Chinese oil and gas market remains CNOOC Ltd. (CEO) due to the company’s robust upstream asset base and attractive growth profile.
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