China’s Sinopec faces further margin squeeze in Q3

23 August 2010 07:23  [Source: ICIS news]

By Judith Wang

Sinopec gasoline stationSINGAPORE (ICIS)--China's state-owned petrochemical giant Sinopec may experience a further squeeze in refining and chemicals margins in the current quarter as the domestic economy continues to cool down, analysts said on Monday.

In the first half of the year, the company reported a 6-percentage point decline in refining margins to 2.8%, while its chemical margins slipped 7.1 percentage points to 10.1%, but managed to post a moderate increase in overall net profit.

Sinopec had a 6.7% year-on-year growth in net profit in the first six months of the year to yuan (CNY) 35.5bn ($5.22bn), with revenue surging 75.4% to CNY 936.5bn, the company said in a disclosure to the Hong Kong Stock Exchange late on Sunday.

The Chinese government may not allow domestic fuel prices to move up too much despite the spikes in international crude prices “in a bid to contain inflation”, said Wang Aochao, a Shanghai-based analyst at UOB Kay Hian.

China only raised fuel price once so far this year, while it adjusted up fuel prices five times in 2009.

“And China’s economy is cooling now, so the demand for petrochemicals will also shrink in the second half,” said Wang, adding that Sinopec’s full-year earnings would not show a strong improvement.

The company’s exploration and production segment had a near quadruple increase in operating profit during the January-to-June period, due to strong gas production and rising crude oil prices, Sinopec said.

Group operating profit was up 7.8% year on year to CNY49.8bn, the company said. Crude oil production was steady at 149m barrels in the first half of the year, while natural gas output surged 40.7% to 200.6bn cubic feet, the company said.

During the same period, Sinopec had processed 101m tonnes of crude, up 16.7% year on year, and produced 41.3% more of ethylene compared to a year earlier at 4.2m tonnes on the back of new cracker start-ups in Tianjin and Ningbo.

Looking forward the second half, the company said it plans to process 102m tonnes of crude and 4.6m tonnes of ethylene.

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By: Judith Wang
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