FocusChina’s Sinopec to post moderate rise in 2010 profits - analysts

29 April 2010 10:14  [Source: ICIS news]

By Fanny Zhang

GUANGZHOU (ICIS news)--China’s state-owned petrochemical giant Sinopec looks set to post a moderate increase in profits this year, backed by stronger crude values, good refining margins and an expanded ethylene capacity, analysts said on Thursday.

Its net profit would likely post an annual single-digit rise given a high base of yuan (CNY) 61.8bn ($9bn) in 2009, in spite of an outstanding performance in the first quarter, they said. But the actual full-year profit figure would be a record high, they added.

In the first quarter of 2010, the oil major had a hefty 40.1% year-on-year surge in net profit to CNY15.8bn, which analysts said, came in line with market expectations.

Qiu Xiaofeng, chief petrochemical analyst at Shenzhen-headquartered China Merchants Securities (CMS), estimated that Sinopec would register an 8% increase in profits in 2010 to CNY66bn. In 2009, Sinopec more than doubled its profits.

“Its second quarter results would be better than the first quarter as the government just hiked fuel prices in April,” said Gordon Kwan, Hong Kong-based head of energy research at Mirae Securities.

The Chinese government had only raised fuel prices once so far this year – by CNY320/tonne ($46.9/tonne) on 14 April – to reflect stronger crude prices.

Further hikes in domestic fuel prices - possibly in May, August and November - would help Sinopec post better refining margins of $5/bbl this year, said Kwan.

Last year, China hiked domestic fuel prices four times and did price cuts twice.

A Sinopec official was quoted on Thurday in the media as saying Sinopec would request the government to speed up the price adjustments to better reflect crude values in the international market.

“Crude oil prices may average $80-85/bbl this year, up from some $60/bbl last year. This would lift Sinopec’s performance in upstream exploration & production,” said Qiu of CMS.

“In the chemical sector, the company would benefit from increasing production capacity in ethylene, a key material in petrochemical derivatives,” Qiu added.

Qiu said the chemicals business of Sinopec had a CNY5.7bn profit in the first three months of the year – better than what he had expected, but the performance of the marketing and distribution segment “is a little bit disappointing”.

Sinopec just had two of its major ethylene facilities started up in China, including a 1m tonne/year cracker at Tianjin in northern China and another 1m tonne/year cracker in Ningbo in eastern China.

Notwithstanding the strong capacity additions, China would remain a net importer of ethylene as the domestic market could well digest more production, said Qiu of SMC.

“Overall chemicals demand in China and the world is recovering along with the improving economy,” Kwan said.

Sinopec said it produced 2.03m tonnes of ethylene and 2.92m tonnes of synthetic resins in the first quarter, up 36.3% year on year and 20.7%, respectively.

Its crude production was relatively flat year on year to 10.4m tonnes, while crude throughput increased 20.4% to 49.5m tonnes, it added.

With additional reporting by Judith Wang

($1 = CNY6.83)

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