Sinopec’s Oil Refining Profit Falls on Crude Costs (Update1)
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By Bloomberg News
Oct. 14 (Bloomberg) -- China Petroleum & Chemical Corp.’s profit from turning crude into fuels fell in the third quarter because of higher oil costs, an official familiar with operations at Asia’s biggest refiner said.
Margins were narrower between July and September, compared with the first six months, the official who declined to be named because the information is confidential, said in an interview in Beijing. Increased sales volume wasn’t enough to offset higher crude costs and the company’s refining business probably broke even in the quarter, he said.
China, the world’s second-biggest oil user, raised the price of gasoline and diesel three times between January and June compared with once in the third quarter. Crude oil in New York averaged about $68 a barrel in the last three months, representing a 32 percent increase from the first half.
“Domestic fuel price adjustments have lagged behind crude gains, which hurt the state oil refiner’s refining profit,” Grace Liu, an analyst with Guotai Junan Securities Ltd., said by telephone from the southern city of Shenzhen. “We expect the company’s processing margin to drop to $5.40 per barrel in the second half from $8.60 per barrel in the first six months.”
Chen Ge, the board secretary at the Beijing-based company also known as Sinopec, wasn’t available to comment.
Fuel Price Caps
Sinopec has gained 45 percent this year in Hong Kong trading, compared with the 49 percent increase in the benchmark Hang Seng Index. The shares climbed 1.6 percent to HK$6.93 at 10:13 a.m. while rival PetroChina Co. gained 3.7 percent to HK$9.82. The Hang Seng was up 1 percent.
The refiner posted a record second-quarter profit of 22 billion yuan ($3.2 billion) and forecast a more-than-50 percent gain in nine-month earnings after the government eased curbs on fuel prices.
China raised fuel prices four times and cut them three times this year, compared with two adjustments in 2008, under a system introduced in December that keeps oil-product prices in line with global crude costs and ensures refiners a profit. The policy shift helped Sinopec end at least four years of refining losses.
First-half operating profit for the refining business was almost 20 billion yuan, compared with a loss of 74.7 billion yuan for the same period of last year, the company said in August, citing domestic accounting standards.
Smaller refining profits at Sinopec contrast with improving margins in Singapore, Asia’s biggest oil-trading center. The profit from turning Dubai crude oil into fuels at Singapore refineries were at minus 29 cents as barrel on Sept. 30, compared with minus $2.04 on June 26, when they were at the lowest this year, according to data compiled by Bloomberg.
Sinopec forecasts crude oil to stay between $60 and $80 a barrel this year for budgeting purposes, the official said, without giving details. Crude oil averaged about $71.35 a barrel this month.
The official said separately that Africa is one of the areas targeted by Sinopec’s parent, China Petrochemical Corp., in its quest for overseas acquisitions. China Petrochemical will pursue at least a 12 percent rate of return on investments in overseas acquisitions, he said.
Chinese energy companies have spent at least $13 billion on overseas assets since December as they take advantage of lower valuations caused by the global recession to meet energy demand in the world’s fastest-growing major economy.
China Petrochemical acquired Swiss-based Addax Petroleum Corp. this year for C$8.3 billion ($8 billion), adding oil reserves in Iraq and West Africa.
Sinopec has set up a unit to review overseas acquisition opportunities, including assets in Angola, Russia, Kazakhstan, Nigeria and Australia owned by China Petrochemical Corp., Chairman Su Shulin said in August.
Sinopec will focus on upgrading and expanding its existing refineries in its plan to increase processing capacity rather than build new plants, the official said.
Sinopec aims to increase oil processing volume to 202 million tons in 2011 from 168.8 million tons in 2008, the company said in its three-year plan announced in August. Fuel sales will rise 10 percent to 135 million tons by then from 123 million tons, it said then.
To contact the reporters on this story: Ying Wang in Beijing at Winnie Zhu in Shanghai at email@example.com Last Updated: October 13, 2009 22:25 EDT