09:45     SHANGHAI PECHEM<00338> - Announcement (2)                           

                                   acrylonitrile is delivered.                
                                   The report is published by                 
                                   PCI Group, an association of               
                                   specialist companies                       
                                   providing consulting support               
                                   to the petrochemicals, fibres              
                                   and related industries,                    
                                   independent of the Company,                
                                   its directors and controlling              
                                   shareholder. This price                    
                                   represents an Asian market                 
                                   price;                                     
    Import Duty Equivalent =       an amount equal to the amount              
                                   of customs duties which would              
                                   be payable in respect of the               
                                   import into the PRC of 1 ton               
                                   of acrylonitrile at a price                
                                   of the Base Price minus                    
                                   US$15/ton; and                             
    Additional Port Costs =        any additional port costs                  
                                   incurred if the Company or                 
                                   Jinyong wish the                           
                                   acrylonitrile to be delivered              
                                   to a port other than the port              
                                   of discharge specified in the              
                                   Supply Contracts (being                    
                                   Jinshan Jetty, Shanghai, in                
                                   the case of the Company, and               
                                   Ningbo port, in the case of                
                                   Jinyong).                                  
                                                                              
    The Company's and Jinyong's acrylonitrile needs not currently             
    satisfied by its own production of acrylonitrile are satisfied            
    entirely by imports from independent suppliers located overseas,          
    primarily Japan. Secco will be manufacturing within the PRC, allowing     
    the Company to make a saving on import costs. Thus the formula allows     
    for this saved import duty cost to be shared between the Company and      
    Jinyong, on the one hand, and Secco, on the other. In addition, the       
    formula provides for a basic US$15 discount to the Base Price, which      
    is a volume discount given that the Company and Jinyong will be           
    significant customers of Secco. Taken as a whole, the above formula       
    enables the Company and Jinyong to purchase acrylonitrile at a more       
    favourable price than they are currently able to do so.                   
                                                                              
    The Company estimates that the annual amount of consideration             
    payable under the Company Supply Contract will initially be               
    approximately RMB63.5 million, and the annual amount of consideration     
    payable under the Jinyong Supply Contract will initially be               
    approximately RMB317 million. This estimate is based on the minimum       
    purchase commitment contained in the Supply Contracts, and average        
    `Low' Acrylonitrile Far East Asia CFR Import Price of US$765 per ton      
    for the 10 year period ended 31 December 2002, and using an assumed       
    exchange rate of US$1 = RMB8.3, but prior to taking into account the      
    additional portion of the formula set out above.                          
                                                                              
    Relationship between the Company, Jinyong and Secco                       
    Jinyong is a subsidiary of the Company, which holds 75% of the            
    registered capital of Jinyong.                                            
                                                                              
    Secco is an equity joint venture company owned as to 20% by the           
    Company, 30% by Sinopec and 50% by BP. Sinopec is the controlling         
    shareholder of the Company, having a beneficial interest of               
    approximately 55.56% of the registered capital of the Company.            
                                                                              
    As Sinopec is also a substantial shareholder of Secco, the Contracts      
    between the Company and Secco, and Jinyong and Secco, respectively,       
    constitute connected transactions of the Company and are subject to       
    independent shareholders' approval.                                       
                                                                              
    Reasons for and benefits of the Supply Contracts                          
    Acrylonitrile is one of the key raw materials used by the Company in      
    its petrochemical production processes. The Company believes that the     
    Supply Contracts enable the Company to ensure a reliable supply of        
    acrylonitrile, at a preferential and stable price. In addition, Secco     
    is located in the Shanghai Chemical Industry Park, approximately 15       
    kilometres from the Company's premises in Shanghai and approximately      
    100 kilometres from Jinyong (located in Zhejiang Province, a              
    neighbouring province of Shanghai). This proximity of Secco to the        
    Company and Jinyong reduces transport costs and minimises the             
    transport risks associated with transporting acrylonitrile.               
                                                                              
    The terms of the Contracts were concluded after arm's length              
    negotiations.                                                             
                                                                              
    Waiver application                                                        
    The transactions contemplated under the Supply Contracts are of a         
    continuing nature, and will arise on a regular basis in the ordinary      
    and normal course of the Company's and Jinyong's business. The            
    Directors consider that full compliance with the press announcement       
    disclosure requirements and shareholders' approval requirements on        
    each occasion they arise would be impracticable, unduly burdensome        
    and costly.