Chinese paraxylene and purified terephthalic acid makers are closely monitoring Fujia Dahua Petrochemicals' operation status as local residents demanded the plant to be shut and relocated amid fears of toxic spills.

Despite state media saying that operations at Fujia Dahua's 700,000 mt/year paraxylene plant were shut on Sunday after street protests, industry sources said the plant was still running.

"They're still operating and will continue to deliver PX to us in August," said one of their contract customers. "I doubt the plant will be shut immediately because there are many issues to consider."

Fujia Dahua, China's first privately owned petrochemical company is located at Dalian, northeastern Liaoning province. It started up in June 2009 and other than PX, also produces 350,000 mt/year of benzene and 100,000 mt/year of orthoxylene. It imports naphtha for its aromatics production and also have term contracts with major domestic PTA makers.

RELOCATION WILL OPEN UP A CAN OF WORMS

A source from Sinopec, China's largest petrochemical producer, said the closure or relocation of Fujia Dahua would have severe repercussions across the industry.

"If the government shuts Fujia Dahua because of its proximity to residential areas, then almost all the petrochemical plants in China will have to be shut," he said. "Qingdao Lidong, for instance, is even closer to the city center than Fujia Dahua. There were also mass protests when the plant was being built. In addition, many of the government-owned plants were also built close to the city."

If Fujia Dahua were to be shuttered because of residents' protests, industry participants worry that China would go the way of Taiwan.

Plans for Taiwan's third refinery and petrochemical complex, Kuokuang Petrochemical Technology Company, was scuttled in April following protests by environmentalists.

"If the government keeps bowing to the demands of the people, then China's petrochemical industry will be endangered," said the Sinopec source.

Another source from Yisheng Petrochemicals, Asia's largest PTA maker, said the government's move to shutter the plant is more of a populist move rather than a practical one.

"Where exactly can Fujia Dahua move to? China is very populated, how many places in the world can you find that are 80km away from the city center?" said the source.

FINANCIAL FALLOUT

Other than environmental issues, industry watchers were also voiced concerns about Fujia Group's financial situation if the PX plant were to shut.

"Fujia is a conglomerate. They are also involved in methanol-to-olefins projects and have taken huge amount of bank loans from state banks. If the government shuts the PX plant -- which is the key money maker in the market now -- the group could be saddled with billions of dollars of debt and that could cripple Chinese financial institutions," said the Sinopec source.

In addition, relocation would be a bigger task than building from scratch, said industry watchers. "For relocation, you will need to dismantle the facility and find another site to accommodate the plant. It will be more laborious than simply building a new plant and could take more than three years and cost even more money," said the Sinopec source. Fujia is also building a second 700,000 mt/year PX plant at Changxing island, Liaoning province. The new plant is expected to started up in second half of 2013.

"The new plant will face the same proximity problem as the current plant.

If this one needs to be shut, then the second one would also be postponed or scrapped. And we're talking about a lot of money already being invested," said the source. "And if the group is forced into bankruptcy, a lot of jobs will be lost."

Fujia Dahua was built at a cost of Yuan 10.8 billion ($1.65 billion)

MEDIA BLACKOUT

Journalists as well as local authorities who went to the plant to follow up on possible toxic spills had been beaten up and Fujia employees were also told by management not to speak to the press or risk "losing their lives", according to Chinese reports.

Several online articles relating to the plant had also been blocked, "a signal that the Chinese government don't want to release these articles any more," said a public relations company in Beijing.

The media blackout aggravated residents and netizens alike and howls of protests over Fujia's status had continue to reverberate beyond Dalian.