Despite a 93 percent jump in its 2007 net profits, oil refiner Sinopec Shanghai Petrochemical said it faces mounting pressure this year due to rising crude prices and smaller investment income.

"Our oil-refining business will be in the red this year," as the firm is sandwiched between rising oil prices and low government-set prices on refined oil products, Chairman Rong Guangdao said. "Even (further) government subsidies won't help us turn profitable."

In 2007, the company processed 8.93 million tons of crude oil, including offshore oil and imported oil. Crude oil cost the firm 34.45 billion yuan, or 65.45 percent of its total costs.

It produced 645,900 tons of gasoline, down 15.19 percent year-on-year. Its diesel output was up 6.82 percent to 2.93 million tons, and it produced 695,700 tons of aviation kerosene, up 30.33 percent.

It produced about 10 percent more ethylene and 12 percent more propylene, year-on-year.

Haunted by the climbing oil prices, Rong said the break-even point for its oil refining has increased from $68 per barrel in 2007 to probably $80 per barrel this year.

Although the firm received a 240-million-yuan subsidy from the government in the first quarter, it is likely to post a loss in its first-quarter earnings.

"With domestic petroleum product prices under stringent State control, there has been a severe mismatch between petroleum-product prices and crude-oil prices. The bailout can't completely offset our loss," he said.

Investment income from the equity and asset market, which boosted the company's 2007 earnings, will not be as much this year, Rong said.

Investment income included the company's sale of A-shares of Shanghai Pudong Development Bank and some of its stake in its unit Secco. All of the investment income contributed two-thirds of the firm's 2007 net profits of 1.6 billion yuan.

But the success won't be repeated this year, as half of the stocks the firm now holds - valued at 230 million yuan - are under the lock-up period, hampering its ability to gain profits from selling shares.

And the company won't invest more in equities and properties due to the sluggish domestic stock and property markets, Rong said.

In response to the speculation of a tax rebate on imported oil, Rong said it would help the company save about 500 million yuan a month, as 90 percent of its oil is imported.

Sources have said that the mainland is mulling returning 75 percent of the value-added tax on oil imports to help stagnant oil refiners. Currently, a 17 percent tax is levied on oil imports.

(HK Edition 04/10/2008 page2)