Monday, 29 October 2012

Sinopec profit falls 9% in Q3 on low China growth

REUTERS

HONG KONG

CHINA’S Sinopec, Asia’s largest refiner, posted a 9.4 percent fall in third-quarter profit after its petrochemical business swung to a loss due to the slowing Chinese economy, offsetting hikes in gasoline and diesel prices.

Net profit sank to 18.3 billion yuan (1.81 billion pounds) in July- September from 20.22 billion yuan a year earlier, Sinopec said in a filing with the Hong Kong stock exchange on Sunday. That compares with an average estimate of 14.7 billion yuan in a Reuters poll of four analysts.

For the first nine months, Sinopec posted a net profit slump of 30 percent. China’s economy slowed for the seventh consecutive quarter, cutting demand for petrochemical products.

“In light of the market situation, we have actively lowered the operation utilisation of our chemical facilities,” Sinopec said.

Output of ethylene, the basic building block for plastics, decreased 4.5 percent to 7.02 million tonnes in the first nine months, while synthetic resin production edged down 1.1 percent to 9.96 million tonnes, Sinopec said.

Sinopec did not give a breakdown of the financial performance of its business divisions, but analysts say its chemical division was in the red in the third quarter compared with a profit of 7.3 billion yuan a year earlier.

That added to the loss faced by Sinopec in processing crude into oil products such as gasoline and diesel, although the shortfall in the third quarter should have been smaller compared with the second after the government allowed refineries to raise prices twice, analysts say.

Sinopec had a refining loss of 9.3 billion yuan in the second quarter and 10.9 billion yuan in July- September of 2011.

The company did not disclose its refining loss for the third quarter on Sunday.

Analysts say long-term profitability of the state oil giant depends on how soon China will reform its fuel-pricing mechanism to allow refiners to fully pass on crude costs to end users.

Chinese refiners cannot fully pass on higher crude costs to consumers because of government price controls to tame inflation.

Fuel price hikes in China are often smaller, and implemented later, than required under a state-set formula that tracks changes in global crude costs.

Hong Kong-listed shares of Sinopec have gained 21 percent in the past three months as the two price hikes in the third quarter fuelled hopes that the government is poised to adopt a more market-oriented pricing policy, analysts say.

Sinopec outperformed a 15 percent rise in the Hong Kong-listed shares of PetroChina and a 10 percent gain in CNOOC, which derive most or all of its earnings from crude production.

Some analysts see a near-term pull-back in Sinopec shares as they don’t expect China to make any concrete change to the pricing mechanism until after its new government is inaugurated next year.

“People are going to be disappointed.

I don’t think they are going to get any material change to diesel and gasoline pricing policy for many months to come,” said James Hubbard, head of Asia oil and gas research at Macquarie.

Oil and gas production rose 4.92 percent in the first nine months to 318 million barrels of oil equivalent, Sinopec said. Refining output averaged 4.39 million barrels per day, up 0.46 percent.

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