SINGAPORE--China s oil and petrochemical majors are expected to report weak first half earnings as they continue to reel from the country s tight rein on domestic refined petroleum products but things may improve in the second half, analysts said on Friday.
Sinopec led the way by issuing a profit warning late on Thursday. It said that earnings for the first half of 2008 are expected to fall by a staggering 50%. For the first quarter, it posted a 69.1% fall in net profit to yuan (CNY)6.06bn ($888m).
Subsidiary Shanghai Petrochemical Co (SPC) went further, saying it was expecting losses for the first half despite receiving subsidies.
Other majors are also expected to show declining earnings as a result of the government price controls as the earnings season gets underway.
Large players such as PetroChina, Yangzi Petrochemical, Guangzhou Petrochemical had posted poor operating results for the first quarter due to price control measures.
"Sinopec and SPC losses were mainly attributed to skyrocketing crude oil prices and refining losses due to the government s prices control. From the beginning of this year, the whole petrochemical industry has been experiencing poor profit conditions," said Yu Fangxing, an analyst from Jianghai Securities, a Dalian-based securities firm.
Though the government had hiked prices in June, it was too late to salvage profits for the first half of the year, he added.
"International crude price may decline from the peak in the following months, so these refiners profit may take a turn for the better by the second half of this year," Yu said.
Explaining the impact of the controls, Sinopec said "The government s strict control over refined oil prices in China despite continuously climbing international crude oil prices resulted in a distortion to the correlation of the products."
The company s announcement would translate to an estimated first half profit of CNY17.47bn as compared to the CNY34.93bn that was reported for the first half of 2007.
"The company has taken various measures to guarantee the supply for the refined oil market in the People s Republic of China (PRC), which resulted in great losses in the oil-refinery business and massive decline in overall performance of the company in the first half of the year," it said.
SPC also bore the brunt of the government s strict control over petroleum products' prices and warned investors of expected losses for its first half ended 30 June on Thursday.
"During the first half of 2008, as international crude oil prices continuingly increased and reached historic highs time and again, the crude oil costs incurred by the company increased substantially," SPC said.
There remains a severe mismatch between petroleum product prices and crude oil prices under stringent state controls thereby resulting in a substantial loss for the company, it added.
The losses were expected despite the company receiving government subsidies amounting to CNY247m for the first quarter and an additional undisclosed amount for the second quarter of 2008.
Sinopec led the way by issuing a profit warning late on Thursday. It said that earnings for the first half of 2008 are expected to fall by a staggering 50%. For the first quarter, it posted a 69.1% fall in net profit to yuan (CNY)6.06bn ($888m).
Subsidiary Shanghai Petrochemical Co (SPC) went further, saying it was expecting losses for the first half despite receiving subsidies.
Other majors are also expected to show declining earnings as a result of the government price controls as the earnings season gets underway.
Large players such as PetroChina, Yangzi Petrochemical, Guangzhou Petrochemical had posted poor operating results for the first quarter due to price control measures.
"Sinopec and SPC losses were mainly attributed to skyrocketing crude oil prices and refining losses due to the government s prices control. From the beginning of this year, the whole petrochemical industry has been experiencing poor profit conditions," said Yu Fangxing, an analyst from Jianghai Securities, a Dalian-based securities firm.
Though the government had hiked prices in June, it was too late to salvage profits for the first half of the year, he added.
"International crude price may decline from the peak in the following months, so these refiners profit may take a turn for the better by the second half of this year," Yu said.
Explaining the impact of the controls, Sinopec said "The government s strict control over refined oil prices in China despite continuously climbing international crude oil prices resulted in a distortion to the correlation of the products."
The company s announcement would translate to an estimated first half profit of CNY17.47bn as compared to the CNY34.93bn that was reported for the first half of 2007.
"The company has taken various measures to guarantee the supply for the refined oil market in the People s Republic of China (PRC), which resulted in great losses in the oil-refinery business and massive decline in overall performance of the company in the first half of the year," it said.
SPC also bore the brunt of the government s strict control over petroleum products' prices and warned investors of expected losses for its first half ended 30 June on Thursday.
"During the first half of 2008, as international crude oil prices continuingly increased and reached historic highs time and again, the crude oil costs incurred by the company increased substantially," SPC said.
There remains a severe mismatch between petroleum product prices and crude oil prices under stringent state controls thereby resulting in a substantial loss for the company, it added.
The losses were expected despite the company receiving government subsidies amounting to CNY247m for the first quarter and an additional undisclosed amount for the second quarter of 2008.
