China's state-owned refinery and Asia's largest crude refiner, Sinopec, plans to cut crude processing by 10 per cent ore more with a fall in domestic demand amidst a slowdown in China's economy and surplus inventories with the company.

Starting this month, Sinopec will refine nearly 15 million tonnes of crude a month, which is equivalent to approximately 3.60 million barrels a day. The state-owned refinery is hit by lower demand and inventories which have stockpiled to record proportions.

The International Energy Agency, also has said that demand for fuel in China, will fall by 200,000 barrels a day.

The Hainan refinery, located in the southern island province will run at 70 to 80 per cent of its installed capacity. The plant has a capacity of 8 million tonnes a year and operated at its full capacity of 7,00,000 tonnes a month during the Beijing Olympics.

Maoming Petrochemical, Sinopec's second largest refinery, located in the southern city of Maoming in Guangdong province, which has a capacity to refine 13.5 million tonnes of oil a year, will cut production by 8.3 per cent to 1.1 million tonnes this month, from 1.2 million tonnes in July and August while Sinopec's Yangtze Petrochemical which has a capacity to refine 8 millions tonnes of crude a year will cut production to 6,20,000 tons in November from 700,000 tonnes last month.

With oil prices are declining, Sinopec, which supplies more than 40 per cent of China's need, is making losses due to a surplus inventory of crude, valued at around $23.440 billion as of end September, when it imported oil at high prices.

As of end-October, Sinopec's inventories were 50 per cent higher than it normally carries and it had around 4.5 million tonnes of petrol and diesel worth 30 billion yuan.
 
Between May and July, China imported huge quantities of oil products, with imports in July alone accounting for 6,10,000 tonnes of petrol and 9,70,000 tonnes of diesel.

Although international prices for crude were high at $115 per barrel during that time many small local refiners had stopped production and hoarded oil even when it touched $147 a barrel, on the premise that prices would go up even further. This hoarded oil is also adding to the glut in the Chinese market.

Sinopec, whose margins in refining crude is one of the highest in the world, started to cut retail prices of petrol and diesel at a few filling stations as it was under pressure when small oil retailers began to cut prices due to the surplus stock they held.

Sinopec reported 17.642 billion yaun profit from January to September this year, slumping 63.74 per cent compared to the same period last year.

Brazilian oil giant, Petrobras is in talks to acquire a stake in one of Sinopec's refinery but the slump in oil prices seems to have affected progress of talks.