Sinopec Reports Better Than Expected Third Quarter Profits

on Oct 29, 2012

On 28 October 2012, China Petroleum & Chemical Corporation (NYSE:SNP, HKG:0386, SHA:600028), popularly known as Sinopec, announced its third quarter results for the nine months ended September 30. Bloomberg reports that the quarterly profit, which beat analyst estimates, was due to increases in state-controlled retail fuel prices and improved petrochemical sales, which helped earnings.

**Sinopec Earnings Beat Forecasts**
Sinopec’s net income fell by 9.3 percent reaching 18.3 billion yuan (£1.8 billion) in the quarter ended September 30, from 20.2 billion yuan the previous year. Despite the decline, however, the quarterly results beat the 14.19 billion-yuan median estimate of nine Bloomberg-surveyed analysts.
With the results better than expected, Sinopec led petroleum shares higher. The Financial Times reports that Sinopec’s shares climbed 2.9 percent in Hong Kong, and helped lift PetroChina’s (NYSE:PTR, HKG:0857, SHA:601857) shares by 2.1 percent. PetroChina, which is the listed unit of China National Petroleum Corporation (CNPC), China’s biggest energy company, is expected to report its quarterly results on October 30.

“The fourth quarter should provide Sinopec a chance to see the refining sector return to profit, especially if the government continues to push for a more flexible retail fuel pricing mechanism,” noted Shi Yan, a energy analyst at UOB-Kay Hian Ltd, as quoted by Bloomberg.
**Increase in State-Controlled Prices**
Among the factors contributing to Sinopec’s better-than-expected quarterly results is the rise in state-controlled fuel prices. China, which controls prices to contain inflation, raised prices both in August and September after inflation decreased to 1.9 percent in September. Sinopec, which is forced to sell fuel below cost under the pricing system, reported its lowest half-yearly profit since 2008 in the six months to June 30.

!m[Beijing-Controlled Retail Fuel Prices And Improved Sales Boost Earnings](/uploads/story/665/thumbs/pic1_inline.png)“The price of chemical products fell in the second quarter, but rebounded in the third quarter,” said Sinopec in a press release.
**Improved Petro-Chemical Sales**
In addition to better retail prices, Sinopec also benefitted from improved domestic demand for oil products and chemical products, as noted in the company press release. The total sales volume and retail sales volume of oil products rose by 5.56 percent, reaching 128.34 million tonnes.

Sinopec also reports an increase in crude production, which rose 2.32 percent to 245 million barrels. Natural gas production rose by 15 percent, to 438 billion cubic feet, representing a year-on-year growth of 14.69 percent. The company also reports that its daily crude oil processing volume rose by 0.46 percent, reaching 4.39 million barrels.
Sinopec’s overseas oil production for the first nine months of 2012 rose by 27 percent to 16.05 million barrels, accounting for 6.5 percent of total oil production. Bloomberg quotes Neil Beveridge, energy analyst at Sanford C. Bernstein & Co as saying that Sinopec’s share of overseas output is significantly smaller than that of its peers such as PetroChina. “It could either go out and buy assets, or look for an asset injection from its parent company.” Sinopec’s parent, China Petrochemical, has indicated that it aims at producing overseas 50 million metric tonnes of crude a year by 2015.


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