30 April 2012 07:13 [Source: ICIS news]
By Fanny Zhang
SINGAPORE (ICIS)--China’s Sinopec is expected to continue incurring losses from its refining operations throughout the year, with earnings from its chemicals segment expected to fall, as oil product prices remained regulated in the world’s second biggest economy, analysts said on Monday.
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For the whole of last year, Sinopec’s refining losses totalled CNY35.8bn.
“We see that the government has been considering adjusting its pricing mechanism on oil products, but it is impossible for China to totally free its fuel markets, as fuel prices are crucial to overall economy,” said Wang Qiang, an analyst at Shanghai-based broker China Galaxy Securities.
In a regulated oil market environment, refiners are constrained from passing on to customers the high cost of crude.
Meanwhile, prospects for Sinopec’s chemical operations do not also look promising for the rest of 2012, according to analysts.
In the first three months of the year, the company’s chemicals operations recorded an 85.9% year-on-year slump in operating profit to CNY1.3bn, because of rising raw material prices.
“Chemical prices stood extremely strong in the first quarter of 2011 and the overall chemical markets were quite rosy during last year. However, the condition this year has been weakening. In the entire petrochemical chain, crude is rising, while prices of most downstream chemicals are dipping,” said Wang of China Galaxy Securities.
“We predict that Sinopec’s chemical profits will decrease by over 50% this year,” he added.
Sinopec posted a CNY26.7bn operating profit from its chemicals operation last year, representing a 78.1% jump from 2010.
But while chemical markets would be largely sluggish for whole 2012, product prices may gradually increase starting the second quarter as demand picks up, said Zhang Junfeng, an analyst at Shenzhen-based China Merchants Securities.
“The first quarter is a traditional low-season for most chemicals,” Zhang said.
($1 = CNY6.28)
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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