30 October 2008 04:36 [Source: ICIS news]
By Bohan Loh and Judith Wang
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SINGAPORE (ICIS news)--State-owned refinery and petrochemical giant, Sinopec, has reported a 39% plunge in its net profit for the third quarter ended 30 September due to rapidly falling chemical prices and squeezed refinery margins, the company said on Thursday.
China’s largest petrochemical company reported net profits fell to Yuan (CNY) 8.17bn ($1.19bn) from CNY 13.41bn year-on-year.
“The sharp decline in crude prices coupled with waning market confidence and demand fundamentals have caused a dramatic change on our operations and have made the business environment very difficult,” said Dai Houliang, director, vice-president and chief financial officer of Sinopec.
Sinopec’s earnings were also eroded by the government’s tight rein over the domestic prices of refined oil products, such as gasoline and kerosene, coupled with the recent tumbling of chemical product prices, Dai said in a media briefing.
For the nine months to 30 September, the company showed a staggering 67% plunge in net profits to CNY 16.42bn from CNY 49.79bn from the same period last year, despite receiving subsidies from the government totalling CNY 42.03bn and CNY 3.07bn in value-added tax (VAT) refunds.
Sinopec received CNY 11.7bn and CNY 22.93bn in subsidies for its third and second quarters respectively during the year.
Dai also raised concerns over the rapidly declining petrochemical prices and said that such a situation was detrimental to Sinopec’s product pricing method that has in turn led to an erosion of CNY 1.5bn in net earnings for the quarter.
“We have also made a CNY 600m provision for impairment loss and we are currently making a valuation on the asset in question to decide if we would provide more or write back the provision by the end of the year,” said Dai without revealing the asset to which the impairment was made against.
On a brighter note, the management remains confident of the corporation’s results for its fourth quarter.
“The government is very concerned over our financial health and remains very supportive of our growth,” Dai said adding that the authorities are starting a number of policies to favour the company’s long-term growth. “We are confident of the domestic market,” he added.
Analysts were also convinced of the management’s optimism for the company’s last quarter of the year.
“I believe Sinopec’s Q4 profits will be much better than the third quarter as lower international crude values should trim the refining losses of the company,” said Fang Lei, a petrochemical analyst from Fujian-based brokerage house, Industrial Securities.
Rumours of a possible reduction in domestic prices of the company’s refined oil products was also rife in the market, Fang said adding that he expects for the government to drop prices by the year end if the “necessity arises”.
“I understand there has been a lot of speculation on the government dropping the prices of refined oil products. But we have yet to receive any official confirmation at this point in time,” Dai said when asked to confirm the truth of the matter.
“I also believe Sinopec would perform better in Q4 provided the rumours of the price drops fall flat. Otherwise, we might see a repeat of last quarter early in 2009,” said Arden Dai, an analyst with research and consultancy firm, Frost & Sullivan ?xml:namespace>
Sinopec shares were trading up 8.84% on the Hong Kong Stock Exchange as at 11:40am local time (03:40am GMT).
Sinopec operates a total of 11 naphtha crackers across China either directly or indirectly through joint ventures. Downstream products include olefins, styrene monomer (SM), polyethylene, polypropylene and monoethylene glycol (MEG).
Sinopec subsidiaries in the petrochemical sector include Maoming Petrochemicals, Beijing Yanhua, Qilu Petrochemical, Shanghai Petrochemical and Yangzi Petrochemicals.
($1 = CNY 6.84)
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