Sinopec Shanghai Petrochemical Company Limited (NYSE: SHI), a subsidiary of Sinopec Corp., is one of the largest chemical-refining petrochemical companies in China. Sinopec is currently the biggest domestic ethylene and acrylic fiber producer, and the company also produces important refined oil products, intermediate petrochemicals, resins, and synthetic fibers, for a predominantly Chinese market. Although SPC has been partially privatized, the Chinese government, in addition to setting domestic petroleum prices, retains considerable influence over the company's management and provides SPC with subsidies.
Sinopec Shanghai Petrochemical Company is one of the largest chemical-refining petrochemical companies in China. It is a vertically integrated company that mainly processes crude oil into synthetic fibers, resins, and plastics, as well as other intermediate petrochemical and petroleum products.
SPC is a subsidiary of the China Petrochemical & Chemical Corporation, which grew out of the Shanghai Petrochemical Complex in 1972. By the end of 2005, SPC had built up a primary crude oil processing capacity of 14,000,000 tons, an expansive utilities system, loading and unloading handling facilities on ocean and inland waterways, and railway and highway transportation. Considering that China is still a net importer of petrochemical products (especially high-end), there is considerable growth potential for domestic companies such as SPC.
In July 1993, SPC became the first company incorporated under the laws of the People’s Republic of China (PRC) to make a global equity offering, and its shares were listed on the Shanghai Stock Exchange, the Hong Kong Stock Exchange, and the New York Stock Exchange. Despite the company’s public offering, the Chinese government maintains strong control over the company’s operations. Sinopec, SPC’s parent company, has indicated that SPC might become completely privatized. In the meantime, however, the government still has significant influence over the company’s operations.
In 2009, SHI generated a net income of ¥1.59 billion on revenues of ¥47.3 billion. This represents a significant turnaround from 2008, when the company lost ¥ 8.01 billion on revenues of ¥59.3 billion.
The Chinese government affects SPC in a number of ways, including its control over prices, influence in SPC’s management, and its provision of both taxes and subsidies.
In the past, SPC's parent company, China Petroleum & Chemical (SNP), has paid a premium 10%-15% over market price to buy out minority shareholders of some of its other former subsidiaries. SHI has said that it will use similar buyouts to further privatization, leading investors to drive up SPC's stock in anticipation of a buyout. SHI has released multiple statements in an attempt to dispel this speculation; these statements were largely ignored by investors, who continue to speculate about a buyout of SPC. If SHI does ever recommence buyouts, it would be beneficial for holders of SPC stock. However, existing hype may have already led to an overinflation of SPC's stock price.
SPC’s major competition comes from Sunoco (SUN), Valero Energy (VLO), and Sinopec Beijing Yanhua (also a subsidiary of Sinopec). Currently, SPC has managed competition well because of the government's price controls and its proximity to large customer bases. However, the expected future revocation of these price controls, and the increased competition that will ensue, could put heavy pricing pressure on SPC.