Sinopec unit warns of profit dive

PUBLISHED : Friday, 26 August, 2005, 12:00am
UPDATED : Friday, 26 August, 2005, 12:00am

Giant posts earnings rise but raises fears over input and output price imbalance

Sinopec Shanghai Petrochemical has warned it expects the petrochemical industry's profitability to decline significantly in the second half as greater supply and high oil prices squeeze profit margins.

The company, one of China's largest petrochemical makers, yesterday posted a 15.96 per cent year-on-year rise in net profit to 1.76 billion yuan as turnover increased 23.1 per cent to 21.88 billion yuan.

The better than expected profit was supported by higher output and product prices despite the average cost of raw material crude oil surging 34.95 per cent to 2,875.79 yuan per tonne during the period.

Crude cost accounted for 69.69 per cent of the total cost of sales. Some 95.9 per cent of crude oil the company processed was imported. Profit prospects in the second half were less rosy, it said.

The company expected the price of crude oil to continue to rise due to the limited ability of Organisation of Petroleum Exporting Countries' members to boost production. Additional output by non-Opec producers was expected to fall.

'At the same time, following the completion and operation of large ethylene projects such as Shanghai Secco and [Nanjing Yangzi-BASF], the imbalance in the supply and demand for petrochemical products on the mainland will subside, and the industry's profitability will significantly decline,' it said.

Germany-based BASF's Euro2.9 billion ($27.7 billion) joint venture petrochemical plant with Sinopec Yangzi Petrochemical as well as Shanghai Petrochemical and parent China Petroleum & Chemical's (Sinopec) joint venture with Britain-based BP in Shanghai came on stream in the second quarter.

Analysts have forecast a 3.67 per cent fall in Shanghai Petrochemical's net profit to 3.82 billion yuan for the whole of this year, according to Thomson First Call.

In the first-half of the year, the company's crude oil processing volume rose 5.52 per cent year on year to 4.78 million tonnes. Its output of diesel surged 18.23 per cent but production of petrol fell 13.01 per cent.

Hit by high crude oil costs and constrained by government price controls, the firm's gross margin on petroleum products fell 14.46 percentage points to 2.11 per cent.

But the gross margins on synthetic fibres, resins, plastics and intermediate petrochemicals all rose from those in the same period last year.

Overall gross margin fell to 14.37 per cent from 16 per cent.