Companies are expanding China operations to cash in on strong demand for commodities as the world’s fastest growing economy ploughs money into massive development projects. The nation’s crude imports in May has surged 20 percent, topping 5 million barrels per day for a fifth consecutive month.

The oil storage and logistics firm is increasing capacity to 5.5-6.0 million cubic meters from 2.367 million cubic meters, Executive Director and President Patrick Wong said on Monday at the Reuters Global Energy and Climate Summit.

The Hong Kong-listed company moved away from its core business of mainly transporting crude in the last few years because of wide fluctuations in shipping demand and freight costs and shifted attention to storage.

“In 2008, the market turned and we decided to focus on asset-based business,” Wong said. “Storage has always been a core asset to Titan.”

He declined to say how much the expansion will cost, but said part of the financing will be from internal resources. 

Its onshore storage business continued to gain momentum in 2010 with revenues from the China terminals increasing 23 percent to HK$200 million (US$26 million) compared to HK$162 million in 2009, Chairman Tsoi Tin Chuan said in March.

The company’s transportation business recorded a loss in 2010 and revenues decreased by 30.7 percent to HK$178 million, compared to HK$258 million in 2009. Overall, the company posted a loss of HK$586 million in its 2010 financial year.

Titan currently has 12 tankers, including a Very Large Crude Carrier (VLCC) and an Aframex. It operates five floating storage units which have a total operating capacity of 1.59 million cubic meters.

“The tanker market is oversupplied by about 10 percent now,” said the 55-year old Wong.

Still, the outlook for the shipping industry will turn positive from next year, he said.

“There should be less new ships coming out after 2012 and the situation should improve as higher demand emerges from recovering economies.”

“We will keep the 12 tankers as there is still demand for them, but we will not be taking any positions against something uncertain,” he said.

UTILISATION RATES

China’s move to introduce measures to limit borrowing to tame an overheated economy has not crimped demand for storage, said Wong.

“Business is still there … The clamp down on lending, we hope, is only a short-term policy, as the market expects China to change this policy in the near future in which liquidity will be back to normal.”

China’s money growth slowed to a 30-month low in May and banks extended fewer new loans than expected as tight monetary policy weighed on bank lending, but stubborn inflation is expected to persuade the government to keep its foot on the credit brakes.

Utilisation rates at its three storage terminals are at least 80 percent. It had a total of 1.825 million cubic meters of storage space in 2010 across Nansha in southern Guangdong, Quanzhou port in Fujian and Yangshan port in south of Shanghai, for which Titan Petrochemicals is in partnership with PetroChina and the Shanghai government.

It added a total of 542,000 cubic meters to its Guangdong and Fujian ports. Construction for the expansion ended last month.

Storage capacity at its Nansha terminal, which is the largest physical delivery storage facility for the settlement of Shanghai Futures Exchange’s fuel oil futures contracts, is now 918,300 cubic meters. The capacity at Quanzhou is 429,000 cubic meters, while Yangshan is 1.02 million cubic meters.

“We have about 3.0-3.5 million cubic meters to build over the next couple of years,” said Wong.

The company had disposed off its Titan Quanzhou Shipyard, and earned 1.8 billion yuan (US$288 million). Some of the amount will be used for debt reduction and the rest for development and building of tankage capacities.

“A majority of our profits in 2010 came from storage, and storage will continue to perform,” he said.

“Overall, we expect 2011 to be a better year than 2010.”

Titan shares traded at HK$0.475 as of 0700 GMT, down from an average of HK$0.59 so far this year.