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Review and Outlook of China's Refined Oil Product Market

Posted on: Tuesday, 8 January 2008, 09:01 CST

High Oil Prices Accelerate Reform of China's Refined Oil Product

BEIJING, Jan. 8 /Xinhua-PRNewswire/ -- CCID Consulting, China's leading research, consulting and IT outsourcing service provider, and the first Chinese consulting firm listed in Hong Kong (Hong Kong Stock Exchange: HK08235), recently released its article on high oil price accelerates reform of China's refined oil product.

In 2007, international oil prices rose greatly. China's oil market is also affected by the international oil market. Currently, China's refined oil product retail market is dominated by two giants (CNPC and Sinopec), as well as other state-owned petroleum companies, private enterprises and international petroleum companies. At the end of December 2006, there were 2505 refined oil product wholesale enterprises in China. 1682 of these enterprises, or 67% of them, were wholesale enterprises fully invested and held by CNPC or Sinopec. There were 95,000 gas stations in China, and 51% of them were gas stations and franchised gas stations under CNPC or Sinopec. There were 1770 foreign-invested gas stations, and automobile gasoline and gas filling stations under construction, which was about 2% of the total number of gas stations in China. Operation profit margin (OPM) and net profit ratio of refined oil product in 2006 were 0.64% and -1.66% respectively. The OPM and net profit ratio of the refined oil product industry in 2007 are predicted to further decrease.

I. Review of the Refined Oil Product Market in 2007

1. The rapid growth of economy pushed the sustained high-speed growth of the refined oil product consumption

The growth rate of the national economy in 2007 will be higher than that of 2006. In 2007, the GDP growth rate will be 11.6%. The rapid development of economy has pushed the demand for refined oil products. The predicted total consumption of gasoline in 2007 is 52.5 million tons, a year-on-year increase of 3.96%; and the predicted consumption of diesel oil is 116.9487 million tons, a year-on-year increase of 2.91%.

2. Increase in petroleum imports and the foreign dependency rate

In 2006, China's petroleum consumption increased by nearly 6.7%. China became the third largest petroleum-importing country in the world, followed by the US and Japan. Meanwhile, China became the second largest petroleum consumption country, followed by the US. According to the predicted statistics, China will import 163.08 million tons of crude oil in 2007, a year-on-year increase of 12.2%; China will import 36.7 million tons of refined oil product, which will increase slightly over 2006. Foreign dependence on petroleum has increased from 29.1% in 2001 to 47% in 2006. This figure is predicted to increase nearly 50% in this year.

3. The proportion of diesel oil continued increasing, and 90# gasoline gradually quitted from the market

The proportion of diesel oil in refined oil product consumption reached 39%, and this figure is increasing each year. Since China enforced the new gasoline quality standard in 2005, 90# gasoline has gradually quitted from the market because the supply of 90# gasoline is in short supply and the profit from 90# gasoline is generally lower than that from 93# gasoline.

4. The access threshold for the refined oil product market was raised

According to the "Administrative Measures on Refined Oil Products Market and Refined Oil Products Operation Enterprise Guide" that was released recently, higher requirements were put forward on the refined oil products warehouse and capital of oil refining enterprises; along with the market access threshold was raised.

5. The situation of nongovernmental enterprises was difficult because they had no rights in China to speak on their own behalf. Petroleum giants, both at home and abroad, were competing in the middle and downstream markets.

Because of the oil shortage and the sustained rising of crude oil prices, nongovernmental gas stations were in a difficult situation. The formal operation of Sinopec Senmei (Fujian) Petroleum Co., Ltd. indicates that international petroleum giants have successfully finished entering the middle stream from the downstream of the petroleum industry chain.

II. Outlook of the Refined Oil Product Market in 2008 1. Energy Law -- the wind vane for development of the product oil market

Market reform of energy price must serve both strategic corporate objectives and the objectives of people's livelihood of the country. The energy market structure has not been optimized. That being the case, whether Energy Law can truly play a role in the reduction of monopolies while also realizing market pricing still needs to be tested in the market. But we believe that the Energy Law will become the wind vane for the development of the refined oil product market in the future.

2. The production capacity of refining plants was increased, and the pressure of oil demand was partially released

China is the major impetus for the growth of energy demand in the Asian market. According to the "Planning for the Long- and Medium-term Development of the Chinese Oil Refining Industry," in 2008, China's newly-added oil refining capability will reach 98,000 tons per day, which will be nearly half of the global newly-added oil refining capability (209,000 ton per day). This will play an active role in releasing the pressure of the increasingly rising demand on refined oil product.

3. The swift growth of automobile sales volume leading factor in gasoline and diesel oil consumption increases

China's automobile industry has just entered the growth stage. In the following 10 years, the Sedan sales volume will grow an average of about 20%. China's automobile market demand is predicted to be over 8 million in 2007, which will be 18% higher than that of 2006. Newly-added automobiles will be the major drive behind the increase in gasoline and diesel oil consumption in 2008.

4. In order to meet environmental protection requirements, the quality gap of refined oil product between domestic enterprises and multinational enterprises was narrowed

China has gradually paid more and more attention to problems stemming from oil quality. China has begun to delineate its own standards for automobile gasoline and diesel oil after referring to relevant standards of the EU. Multinational petroleum companies and China's domestic refined oil product manufacturing enterprises will adapt to the situation and improve their production technology levels so as to meet the requirements of the Chinese Government on environmental protection and the demands of domestic consumers on product quality.

5. Nongovernmental enterprises improving; shuffling market; three giants emerge in the struggle for hegemony

Currently, there are about 45,000 nongovernmental gas stations in China, and two fifths of them are perilously close to extinction. Faced with the intensified market competition, a large proportion of weak enterprises will quit the market. This provides oil-refining giants with an opportunity to reshuffle the market. Integration is the inevitable trend for international major companies. The rapidly rising China National Offshore Oil Corp. may become the third giant in the market. In 2008, the competition in the market will shift from "two giants" to "three giants."

6. In market competition, gas stations will show the following trends: the number of gas stations will decrease; the sales volume will increase; the efficiency will be increased; and the quantity of refueling in single gas stations will increase

Currently, China is in its third stage of normative development for the gas station development process. In the future, the oil product market will show the following trends: the number of gas stations will decrease, and the average sales amount in single stations will increase; the application of automation and informatization management measures will expand; and importance will be attached to the non-oil part of the distribution business that suits national conditions.

About CCID Consulting

CCID Consulting Co., Ltd. (hereinafter known as "CCID Consulting"), the first Chinese consulting firm listed in the Growth Enterprise Market of the Stock Exchange (GEM) of Hong Kong (stock code: HK08235), is directly affiliated to the China Center for Information Industry Development (hereinafter known as "CCID Group"). Headquartered in Beijing, CCID Consulting has set up branch offices in Shanghai, Guangzhou, Shenzhen, and Harbin, with over 300 professional consultants and industry experts. The company's business covers over 200 large and medium-sized cities in China. Apart from home market development, CCID Consulting establishes international cooperation links across the United States, the Asia-Pacific region and Europe with agents in the U.S., Japan, South Korea, Australia, Singapore, Italy and Russia, with the aim of going global.

Based on four major competitive areas: powerful data channels, industrial resources, intense knowledge and a deep understanding of information technology, CCID Consulting provides customers with consulting, research and IT outsourcing services covering strategic planning, IT applications, marketing strategies, human resources and information technology outsourcing. Customers range from industrial IT users, telecommunications companies, energy companies, finance companies, and automobile companies, to government departments at all levels and diversified industrial parks. CCID Consulting commits itself to be the number 1 consultant in strategic consulting, the number 1 brand for strategic consultancy, the number 1 advisor for enterprise management and the number 1 consultant for government decision-making.

For more information, please contact: Cynthia Liu Coordinating Manager CCID Consulting Co., Ltd. Tel: +86-10-8855-9080 Email: liuyan@ccidconsulting.com

CCID Consulting Co., Ltd.

CONTACT: Cynthia Liu, Coordinating Manager for CCID Consulting Co., Ltd.,+86-10-8855-9080, or liuyan@ccidconsulting.com

Source: PRNewswire

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