Sinopec profit plunges 54pc on high costs
Gita Dhungana
Saturday, March 31, 2007
Net profit for Sinopec Shanghai Petrochemical (0338) plunged 54 percent in 2006 as high crude oil prices increased the company's production costs.
This was despite the mainland's strong demand for petrochemical products and a government subsidy for state- regulated prices.
Net income slumped to 844.4 million yuan (HK$853.7 million), or 0.12 yuan per share, down from 1.85 billion yuan, or 0.257 yuan a share, in 2005, based on international accounting standards, the company reported Friday.
Revenues rose 10 percent to 50.6 billion yuan from 46 billion yuan.
Last year's earning included a subsidy of 282.1 million yuan the company received from Beijing as compensation for keeping domestic fuel prices at government-regulated levels.
China controls fuel prices to limit their impact on inflation, restricting oil companies to selling their products at a maximum 8 percent above or below state guidelines.
This restriction has dragged down profits of mainland oil refiners as crude oil prices surged to record levels in 2006, reaching US$78.49 (HK$612.22) a barrel in New York last July.
Sinopec's oil-refining business, which produces gasoline, diesel and jet fuel, recorded an operating loss of 1.7 billion yuan last year, widening from a loss of 446.9 million yuan in 2005.
The company, 55.56 percent owned by China Petroleum and Chemical Corp, processed 8.9 million tonnes of oil into fuels last year, 6 percent less than 2005, but the average cost of crude oil processed rose 17.7 percent to 3,781 yuan per tonne, the firm said.
Crude oil accounted for about 67.72 percent of the company's toal cost of sales last year.
"The increase of average costs for crude oil processed was far more than the corresponding price increases for the group's four major products," company chairman Rong Guangdao said in a statement to the Hong Kong stock exchange.
"The group will still be exposed to a number of challenges: international oil prices are expected to continue to fluctuate at high levels [and the] state's refusal to loosen control over prices for domestic petroleum products."
In addition, intensifying competition and further reduction of tariffs for imported petrochemicals will also put pressure on the company's profit margin, Rong said.
Sinopec Shanghai shares closed Friday at HK$4.07, down 1.2 percent.