Sinopec Says 1st-Half Profit May Surge on Fuel, Chemical Sales

Sinopec Says 1st-Half Profit May Surge on Fuel, Chemical Sales

China Petroleum & Chemical Corp., Asia’s biggest oil refiner, said first-half profit may rise more than 50 percent on increased sales of fuels and chemicals.

The forecast from Sinopec, as the Beijing-based company is known, came as it said first-quarter profit more than doubled from a year earlier. Net income climbed to 19.4 billion yuan ($2.5 billion), or 0.224 yuan a share, from a restated 9.55 billion yuan, or 0.110 yuan, the company said yesterday.

Sinopec reversed the year-earlier losses from producing fuels at state-controlled prices in the first three months as oil costs dropped. Earnings from chemical sales surged 98 percent because of demand from manufacturers in the world’s fastest-growing major economy.

“The further improvement in the refining segment this quarter is a manifestation of how Sinopec’s core business is tied to crude prices and the follow-on from government price adjustments,” said Lei Wang, co-portfolio manager of $11 billion including Sinopec stocks at Thornburg International Value Fund in Santa Fe, New Mexico. “Energy prices should go on firming, and the regulatory environment should support this, to push the Chinese economy to become more energy efficient.”

First-quarter sales rose 23 percent to 274.4 billion yuan, Sinopec said in a statement to the Shanghai stock exchange. Benchmark oil prices in New York fell by an average 8.3 percent from a year earlier, helping trim costs for Sinopec, which imports 70 percent of the crude it processes at its refineries.

`Rapid Growth’

“China’s economy maintained its rapid growth, sustaining demand for petrochemical products,” the company said. “Falling international oil prices and the high level of domestic petrochemical products supported our earnings.”

Sinopec’s refining business made a profit of 4.17 billion yuan in the quarter, compared with a loss of 7.88 billion yuan a year earlier, when the company lost $1.03 processing each barrel of oil. Operating profit at the chemicals division rose to 6.2 billion yuan from 3.14 billion yuan.

Marketing and sales operating profit, which includes Sinopec’s 28,000 filling stations, also more than doubled, rising to 7.74 billion yuan from 3.14 billion yuan.

“Under the current operating situation, if the market environment doesn’t have significant changes, the company estimates first half profit will rise more than 50 percent from the same period last year,” Sinopec said.

Operating profit from oil and gas exploration and production fell 32 percent to 11.65 billion yuan, reflecting lower oil prices.

Oil, Gas Prices

Crude oil output increased 2 percent to 10 million metric tons. The average price the company realized for its crude fell 17 percent to 2,582.7 yuan a ton. Natural gas production increased 10 percent to 2 billion cubic meters. The realized price for gas increased 7.3 percent to 799.27 yuan per thousand cubic meters.

Sinopec processed 5 percent more oil during the quarter, refining a total of 36.9 million tons. Domestic fuel sales climbed 5.51 percent to 27.5 million tons. Gasoline output rose 6.1 percent to 5.87 million tons, diesel production gained 0.7 percent to 13.9 million tons and kerosene production rose 22 percent to 1.9 million tons.

Production of ethylene, a chemical used for making plastics and fibers for textiles, jumped 7.8 percent to 1.6 million tons in the first three months.

Sinopec’s Hong Kong shares have gained 44 percent in the past six months, more than PetroChina Co., the nation’s largest oil company, and Cnooc Ltd., the third biggest, both of whose stock has risen 8 percent.

Profit Peak

Sinopec’s profit may have peaked in the first quarter, UBS analysts Thomas Wong and Lauren Wong wrote in an April 12 research note. Should crude oil end the second quarter at an average price of $63 a barrel, Sinopec may have a refining loss in the three months of as much as 5 billion yuan, they wrote.

“The good first-quarter result is only driven by a lower crude oil price in the period December 2006 to February 2007,” they said. “Sinopec has been suffering from crude oil price risk, weak upstream fundamentals, a slowing marketing segment and huge capital expenditure investment in refining and petrochemicals.”

Capital spending in the first quarter was 15.15 billion yuan, compared with 14.4 billion yuan a year earlier, Sinopec said yesterday. The company said April 10 it plans to increase spending 38 percent this year to 110 billion yuan.

Crude oil prices in New York fell to an average of $58.225 a barrel in the first quarter, down from $63.477 in the same period a year earlier.

China cut the price of gasoline by 4.2 percent and jet fuel by 1.9 percent Jan. 14 to reflect declines in oil costs.

Sinopec said last week its 2006 refining loss widened to 25.3 billion yuan from 3.54 billion yuan a year earlier. China’s government paid Sinopec 5 billion yuan in subsidies last year to compensate for selling products below cost.

Net income in 2006 increased 30 percent to a record 53.9 billion yuan as sales exceeded 1 trillion yuan for the first time, Sinopec said April 10.

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