Singapore-listed Sinostar PEC Holdings has postponed its proposed acquisition of Dongming Runchang Petrochemical Co, which owns a heavy oil conversion facility in east China's Shandong province, due to the current "unfavorable market conditions and uncertain economic outlook."
Sinostar PEC said in a statement Thursday that it had also entered into a supplemental agreement that grants it the right, but not the obligation, to acquire a 49% equity interest in Dongming Runchang within 14 months.
Officials at Sinopec PEC could not be reached for comment.
Sinostar PEC, which started trading on the Singapore Stock Exchange in September 2007, is engaged in the fractionation of raw LPG for the production and sale of propylene, polypropylene and processed LPG.
The company has a 250,000 mt/year gas fractionation facility, 100,000 mt/year gas fractionation unit and 50,000 mt/year polypropylene production unit. It gets its supply of raw LPG from Dongming Petrochem Group, one of the largest privately-owned refineries in Shandong with a crude distillation capacity of 8 million mt/year (160,658 b/d).
China's 60-plus private refineries have a total refining capacity of over 80 million mt/year (1.61 million b/d), accounting for around 18% of the country's total crude throughput, of which an estimated 50 million mt/year of capacity is located in Shandong.
These refineries often cannot obtain enough crude oil from Sinopec and PetroChina, the country's two major oil refiners authorized by the government to import crude and reallocate to private refiners. As a result they often have to import straight-run fuel oil, mainly M100 from Russia, to produce gasoline and diesel.
The current major shareholder of Dongming Petrochem is Shandong Hong Li Yuan Stock Ltd., with a 60.91% stake.
Sinostar PEC's non-Executive Chairman Li Xiang Ping and its Chief Executive Fan Deng Chao indirectly hold 19.06% of Hong Li Yuan through another company, Shandong Si Yuan Trading Co. In addition, Li is the current legal representative and chairman of the board of Dongming Petrochem.
Dongming Runchang was set up in 2008 by Dongming Hengchang, a wholly owned subsidiary of Sinostar PEC, and Dongming Runbang to build and operate a heavy oil conversion facility with a processing capacity of 1.2 million mt/year. The plant produces LPG, naphtha, diesel, gasoline and asphalt.
Dongming Runchang also operates a gas fractionation facility for the production of processed LPG and propylene with a production capacity of 300,000 mt/year. Dongming Runchang commenced operations in May 2011.
Sinostar PEC's Dongming Hengchang holds a 51% interest in Dongming Runchang, with Dongming Runbang holding the balance.
In the third quarter of this year, Sinopec PEC recorded a loss of Yuan 36.25 million ($5.69 million), down from a profit of Yuan 8.49 million in the same quarter the previous year.
The company's loss for the first nine months of 2011 was Yuan 14.54 million, down from Yuan 27.89 million over the same period of 2010.
Sinopec PEC said its subsidiary Dongming Hengchang was not able to procure sufficient raw materials for production during the quarter as its strategic supplier, Dongming Zhongyou Fuel and Petrochemical Co., halted production for maintenance during the period, resulting in the loss.
The company also said that a recent retail price cut for fuels announced by the government and the deferred commencement of operations at the Ri-Dong (Rizhao-Dongming) crude oil pipeline to later in the fourth quarter will "cause certain effects to the group as a whole."
The Ri-Dong pipeline is a joint investment between the Dongming Petrochem and state-owned China National Petroleum Corp. The 445.9 kilometer (277 mile) pipeline runs from Rizhou port in Rizhao city, Shandong province, to the Dongming refinery.
