Sinopec, Asia's largest refiner, expects to see bigger losses this year despite the fuel price rise in China, analysts said.
The expected losses were attributed to the huge gap between the soaring world crude price and the low state-set domestic refined oil price, a possible cancellation of oil import tax rebates and the climbing construction cost of refining projects.
"The fuel price rise was helpful but far from eliminating losses. If the government cancels preferable policies, the refineries will be under greater pressures," said an unnamed Sinopec official.
The National Development and Reform Commission raised the price of gas and diesel by 18 percent from June 20 to reduce domestic oil company losses. However, the rise could not fully offset their losses as crude rocketed to more than 145 U.S. dollars per barrel over the past week.
Frank Li, a JP Morgan Chase analyst, said Sinopec's quarterly loss might amount to 31 billion yuan (about 4.5 billion U.S. dollars), calculated on an average crude price of 120 U.S. dollars per barrel. Its quarterly profits from its oil and chemical businesses added up to just 24 billion yuan.
He said the company had to import 1.5 million tonnes of diesel in the second quarter. This resulted in a loss of another 3.1 billion yuan, increasing its financial burden.
Based on a crude price of 110 U.S. dollars per barrel for the remaining two quarters, JP Morgan Chase lowered its forecast for Sinopec's 2008 net profit by 67 percent to 18.9 billion yuan. The estimate did not consider the declining revenue from the company's chemical business.
In effort to raise its diesel output, Sinopec cut its output of naphtha and other chemicals in June and July.
Sinopec's predicament could last until 2010 even if the price of crude stopped rising, said Xavier Grunauer, a Nomura Securities analyst.
A scrap of crude subsidies would make the situation even worse. Although the company earlier denied market talk the government would stop subsidizing it or cancel import tax rebates, a company official confirmed to the Shanghai Securities News that by July 4, Sinopec had not received any official document on a continued refund of value-added taxes over imported gas and diesel.
The company received 2.51 billion yuan for such a refund from April to June, according to the Ministry of Finance.
Sinopec predicted its net profit to decrease by more than 50 percent in the first quarter of 2008 from the same period a year earlier. The company reported a net profit of 56.53 billion yuan in 2007, up 5.5 percent year on year.
(Xinhua News Agency July 8, 2008)
