Sinopec sees 50 percent rise in H1 net profit

Updated: 2009-04-30 06:58

(HK Edition)

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HONG KONG/BEIJING: Top Asian oil refiner Sinopec Corp said its first-half earnings would rise at least 50 percent as falling crude oil prices and Beijing's fuel-pricing reforms offset weak demand.

Shares of Sinopec, the world's second-largest refining company after Exxon Mobil, yesterday rose 3.6 percent to HK$5.80, outperforming a 2.8 percent gain on Hong Kong's benchmark Hang Seng Index.

Sinopec reported an 85 percent jump in first-quarter earnings late on Tuesday - its second straight double-digit percentage rise. The company had prepared investors last month for a rise of more than 50 percent in quarterly net profit.

The state-owned refiner's fortunes have shifted in recent months after crude prices dropped sharply and Beijing moved to hike fuel prices, guaranteeing higher profit margins.

But Sinopec now faces growing competition from smaller, independent refineries, shrinking profits from its marketing division.

"The fall in oil prices and the new NDRC (National Development and Reform Commission) pricing scheme has made it more profitable to be marketing fuel in China," said JP Morgan analyst Brynjar Bustnes.

In contrast, PetroChina Co Ltd, the world's second-biggest oil and gas producer, posted a 35 percent drop in quarterly earnings this week, its worst result in two years, while earnings at Europe's top energy groups Royal Dutch Shell Plc and BP Plc fell by around 60 percent due to lower crude oil prices.

Crude prices hovered at an average $43 a barrel in January-March, down about 56 percent from a year ago.

Although Sinopec's steep 12 percent fall in first-quarter fuel sales showed demand in the world's second-largest energy consumer remained weak, analysts say there are signs of a recovery this month.

"It's already come back to a certain degree," Bustnes said. "I expect overall fuel demand in China to be up slightly from last year, based on the recovery in the auto sector. That would boost demand for oil," he said.

However, Sinopec's Chief Financial Officer Dai Houliang said he was optimistic about the economic outlook on the mainland, adding that the government's 4 trillion yuan ($586 billion) stimulus package would prop up demand for fuel in the nation.

He said on a conference call that Sinopec is happy to see there are signs of a recovery on the mainland, "but the economic situation globally also contributes to uncertainty for us."


(HK Edition 04/30/2009 page4)