UpdateSinopec H1 net profit dips, Q3 likely weak

25 August 2008 06:08  [Source: ICIS news]

Sinopec H1 net profit dips, Q3 likely weak(Recast lead, updates with analyst comment and more details throughout)

By Bohan Loh and Dolly Wu

SINGAPORE (ICIS news)--Chinese energy giant Sinopec is expected to continue to perform poorly in the third quarter as price hikes in June have not been able to boost its refining margins sufficiently and further increases were too late to be realised by the end of September, analysts said on Monday.

It reported late on Sunday a 77% dip in net profit for its first half ended 30 June to yuan (CNY) 8.3bn ($1.21bn) from CNY 36.4bn in the previous corresponding period.

Earnings weakness however, was unlikely to end with the last quarter.

“Even if they decide to hike prices of oil products now, its still going to be too late to show on the profit and loss for the third quarter,” an analyst with Shanghai based Guotai Jun’an Securities said in Mandarin.

An industry analyst at the National Energy Bureau said it was unlikely that Sinopec would raise prices in the near term.

“The inventory level of crude is likely to be high now, especially since we’ve just concluded the Olympics. Refineries were also shut for turnarounds during July and August,” he said.

The Chinese oil and gas major attributed the significant decrease in first half half earnings to soaring crude values, the government’s tight rein on prices of domestic oil products and the spikes in prices of chemicals.

The company’s operating profit fell 87% in tandem with net earnings to CNY 7.2bn from CNY 53.6bn year on year.

Total revenue however, rose 36% to settle at CNY 768.2bn.

Operating revenue for the company’s chemicals segment grew 14% to CNY 132bn from CNY 115.7 in the same period last year while profits fell 47% to CNY 4.5bn from CNY 8.5bn on rising crude and energy costs.

The greatest erosion of the company’s earnings came from its refining segment which saw an operating loss of CNY 46bn as opposed to an operating profit of CNY 5.7bn in the previous period.

This was largely due to running refinery facilities at full capacity to meet market demand despite price control measures imposed by the authorities.

“The price increases announced in June came too late to offset the losses that we experienced earlier on in the year,” a senior Sinopec official said.

Looking forward, the management believed that the Chinese economy would maintain its growth momentum and also expected international crude prices to remain high putting continued pressure on the domestic refining business.

The company also intends to intensify efforts on the optimisation of product structure, unit operations and the implementation of energy and cost savings in its chemical segment on expectations for a demand growth slowdown in the second half of 2008.

Additional focus will be placed on the research and development of new products and the production of high value-added products, the company said.

In line with the company’s recent announcements to cut operating rates of its crackers on bearish downstream demands, Sinopec plans to produce 3.26m tonnes of ethylene for the second half of 2008, down approximately 1.5% quarter-on-quarter.

Sinopec’s shares closed 3.0% higher at Hongkong dollar (HKD) 7.82 on the Hongkong Exchange on Monday.

($1 = CNY 6.84)

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By: Bohan Loh
+65 6780 4359

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