Sinopec Profit Falls 39% on Record Crude Oil Costs

By Winnie Zhu

Oct. 29 (Bloomberg) -- China Petroleum & Chemical Corp., Asia's biggest oil refiner, said third-quarter profit fell 39 percent because an increase in the government's ceiling on retail fuel prices wasn't enough to cover record crude costs.

Net income dropped to 8.17 billion yuan ($1.2 billion), or 0.087 yuan a share, from 13.4 billion yuan, or 0.155 yuan a share a year earlier, Sinopec, as the Beijing-based company is known, said in a statement to the Shanghai Stock Exchange today. That's higher than the median estimate of 5.2 billion yuan in a Bloomberg survey of three analysts.

China allowed fuel prices, controlled to curb inflation, to rise as much as 18 percent in June to help refiners cope with higher raw material costs. That increase fell short of the 57 percent jump in global oil prices in the quarter from a year earlier, prolonging Sinopec's losses from turning each barrel of crude in to gasoline and diesel.

``The June fuel price hike wasn't enough to boost profits at Chinese refineries,'' Qiu Xiaofeng, an oil analyst with China Merchants Securities Co., said by telephone in Shanghai before the announcement.

Sinopec shares rose 5 percent to HK$4.41 in Hong Kong today. The stock has fallen 67 percent this year, compared with a 59 percent drop in the benchmark Hang Seng Index.

State Subsidies

Sinopec received 11.7 billion yuan in state subsidies to compensate for losses from processing imported crude in the third quarter, it said. The government paid state refiners rebates of 75 percent on the 17 percent tax levied on crude imports in the second quarter. Sinopec received 22.93 billion yuan in that quarter, it said Aug. 24.

Sinopec's capital spending in the first nine-months was 58.8 billion yuan, the company said. The company will cut capital expenditure by 8.2 billion yuan because of operating pressures and cash-flow constraints caused by refining losses, it said Aug. 26.

Oil output between January and September increased 2 percent to 31.33 million metric tons and the average selling price rose 59 percent to 4,699 yuan a ton. Processing volume at Sinopec, which operates almost 29,000 gasoline filling stations, rose 7.3 percent to 128.77 million tons.

Natural gas output was 2.2 percent higher at 6.1 billion cubic meters as prices climbed 15 percent to 934.38 yuan a thousand cubic meter.

The third-quarter profit reported today is four times that of second quarter's net income of 2.19 billion. Sinopec's refining losses may narrow in the fourth quarter as crude prices fall, said Wang Aochao, an analyst at UOB Kay Hian Ltd.

Oil has dropped 56 percent from July's record because of concerns a global recession and the worst financial crisis since the Great Depression will cut demand. Crude oil for December delivery traded at $65.9 a barrel at 18:52 p.m. Singapore time.

To contact the reporters on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net