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Sinopec’s interim profit slumps 21.6pc, as falling global oil price outweighs gains from refining

Sinopec, the nation’s third largest oil and gas producer and the world’s second largest oil refiner, has been hit hard by sharply lower oil and gas prices, which dragged down strong gains in the company’s downstream refining and chemical activities.

Net profit for the year’s first six months was 19.92 billion yuan, down 21.6 per cent compared with 25.42 billion yuan year on year, the lowest in eight years.

Total turnover slumped 15.6 per cent to 879.22 billion yuan, the company said, adding that the fall was mainly attributable to the decline of international crude oil and petrochemical product prices compared with the same period of last year.

But the result was still better than expected by some analysts.

According to the average estimate of Nomura and Sanford C Bernsteins analysts, the company had been forecast to announce a 42.5 per cent year-on-year fall in first-half net profit to 14.6 billion yuan.

An interim dividend of 7.9 fen per share was declared, compared to nine fen last year.

In the first half of 2016, the company’s operating profit was 35.1 billion yuan, representing a decrease of 13.3 per cent year on year.

“China’s economic growth is expected to remain steady, which will drive the growth of domestic demand for refined oil products and petrochemical products,” chairman Wang Yupu said of the second-half outlook in a filing to Hong Kong’s stock exchange on Sunday.

“We will remain focused on implementing the development plan for 2016 through 2020 – transforming the pattern of growth, adjusting asset structure, upgrading asset quality and promoting sustainable growth to achieve superior business results.”

Its oil and gas production business saw first-half operating losses widen to 21.93 billion yuan from a loss of 1.83 billion yuan in the year-earlier period.

The average natural gas selling price also fell 19.4 per cent to 1,267 yuan per thousand cubic metres, after Beijing last November slashed the non-residential wholesale gas price by an average of 28 per cent nationwide.

Besides weaker oil and gas prices, the firm was also hit by a 11.4 per cent year-on-year decline in first-half oil output as it was forced to shut down loss-making high-cost fields, much higher than the 5 per cent it was targeting for the full year.

Its first-half gas output growth of 10 per cent was also behind its full-year target of 17.7 per cent, due to production disruption from a pipeline transmission problem at its Puguang field in Sichuan province.

However, its oil refining operating profit surged 112.7 per cent to 32.59 billion yuan from 15.32 billion yuan, thanks to a more favourable state fuel pricing policy.

“Besides cost efficiency gains and more disciplined capital allocation, China’s [refiners-friendly fuel pricing policy] also boosted Sinopec’s refining profit margin, which together with inventory value gains and robust chemical earnings helped offset all of the upstream exploration and production losses,” Nomura head of Asia oil and gas research Gordon Kwan wrote in a note ahead of the results.

Chemicals production recorded a 3.8 per cent fall in operating profit to 9.68 billion yuan from 10.1 billion yuan.

Fuel marketing and distribution saw operating profit rise 3.9 per cent year on year to 15.78 billion billion yuan from 15.2 billion yuan.

Sinopec shares on Friday closed 0.9 per cent higher at HK$ 5.62. They have surged 20 per cent year-to-date, outperforming the Hang Seng Index’s 4.5 per cent gain.