Asia's largest refiner Sinopec said it would further cut its capital expenditure as high crude oil prices erode earnings.

The company will also optimize its investments to focus on the main business and key projects, the group said on its website yesterday.

"The move is to reduce capital and investment risks," said Wang Tianpu, president of Sinopec Corp. "As global crude oil prices will remain high, China's petrochemical industry will see fiercer competition. Sinopec is now under big pressure in profit return and market supplies."

"The company will control the construction progress of new projects, delay those that are not urgent and cut those that are not necessary," Wang said, without giving details.

Analysts said that the spending cuts would have an impact on the company, but not a substantial one as the cuts are mostly in its non-core businesses.

China National Petroleum Corp (CNPC) earlier said it would cut office costs and spending on entertainment and travel by at least 10 percent this year.

The company will not approve the rental or purchase of luxury cars or the construction of new buildings or hotels. It will also limit spending on parties and ceremonies and cut back on meetings and overseas trips.

Sinopec's first half profit slumped 77 percent from a year ago to 8.26 billion yuan, while refining losses reached 46 billion yuan. Sinopec Group Chairman Su Shulin said earlier that the second half would be a harder time for the company.

Su said earlier that the company plans to cut 2008 expenditure on exploration and development by 1.9 billion yuan, reduce its spending on refineries by 1.7 billion yuan and lower investment in chemical plants by 4.6 billion yuan.

Dai Houliang, Sinopec's chief financial officer, said the government would continue to provide subsidies to the company in the third quarter, but it could decrease the amount because of falling world crude prices and an increase in domestic refined oil prices since June 20.

Sources from Sinopec said that the company would lose more than US$200 from each ton of imported crude oil it refined, even when the world crude price stood at US$115 per barrel. Nearly 80 percent of the crude refined by Sinopec in the January-June period was imported.

Soaring production costs caused by skyrocketing crude prices have put domestic refineries into deep losses. From January to June, refineries under CNPC and Sinopec incurred losses of 5.71 billion yuan, 47.9 percent more than a year earlier, according to the China Petroleum and Chemical Industry Association.

(China Daily September 9, 2008)