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BEIJING, Aug 26 (Reuters) – China’s Sinopec Shanghai Petrochemical (600688.SS) expects to finish construction of a 3.5 billion yuan ($540.11 million) carbon fiber project in late-2022 to produce a higher quality product at lower cost, a company official said on Thursday.

As diesel consumption has peaked and gasoline demand is expected to peak in China in 2025-28, the refining industry is seeking to diversify.

At the same time, China wants to reduce its dependency on imports, mostly from Japan and the United States, as it strives to meet increasing demand for carbon-fiber, used in aerospace, civil engineering, military, automobile manufacturing and wind turbines.

The project is designed to produce 12,000 tonnes per year of 48K large-tow carbon fiber, which contains 48,000 continuous filaments in one bundle, giving it greater stiffness and tensile strength compared with current small-tow carbon fiber that contains 1,000-12,000 filaments. It is also cheaper to make when mass produced.

Sinopec Shanghai Petrochemical, which currently has 1,500 tonnes per annum of carbon fiber production capacity, is one of the first refiners in China to research this new material and put it into mass production.

“The company will mainly focus on resin, polyester and carbon fiber,” Guan Zemin, general manager of Sinopec Shanghai, said on a conference call, adding the firm will investigate carbon fiber demand in the electricity and fuel cell sectors.

Sinopec Shanghai on Thursday reported a 1.224 billion yuan net profit during the first six months of 2021, up from a net loss of 1.7 billion yuan last year.

Its crude oil processing volume fell 12% to 6.21 million tonnes from a year ago as the refinery went through a three-month overhaul.

“We expect a limited impact on fuel demand in the second half of this year despite a resurgence of COVID-19 cases…Our plan is to maintain full operational rate at our refining units,” Guan said.

The company also said the first phase of its hydrogen supply centre would be launched in September, when it would supply 20,000 tonnes of hydrogen each day, expanding to around 100,000 tonnes per day in the future.

Sinopec Shanghai said it was considering producing green hydrogen, based on renewable energy by using its 6 kilometre coastline to develop solar and wind power.

($1 = 6.4802 Chinese yuan renminbi)