Shanghai Petrochem profit jumps 93.5pc but outlook cloudy

PUBLISHED : Tuesday, 08 April, 2008, 12:00am
UPDATED : Tuesday, 08 April, 2008, 12:00am

Sinopec Shanghai Petrochemical posted a 93.5 per cent jump in net profit last year, although prospects for this year are clouded by surging raw material costs and a prolonged freeze in fuel prices.

Owing to rising crude oil prices and a severe mismatch between mainland petroleum product prices and crude oil prices, the firm forecast a substantial loss in oil processing in the first quarter despite a 247.3 million yuan (HK$275 million) government subsidy. It made a profit of 1.06 billion yuan during the same period last year.

The company, which operates China Petroleum & Chemical Corp's (Sinopec) second-largest refinery in Shanghai, had a net profit of 1.634 billion yuan, up from 844 million yuan in 2006 based on Hong Kong accounting standards.

This is 6.6 per cent below the 1.75 billion yuan mean estimate of 12 analysts in a Thomson Financial poll.

Turnover grew 8.69 per cent to 54.25 billion yuan.

The gap between domestic and Singapore ex-refinery petrol prices has widened to 23 per cent and diesel to 36 per cent, Deutsche Bank says in a report.

Sinopec Shanghai imports all the crude it processes and has benefited from a 4 per cent appreciation of the yuan against the US dollar so far this year, raising its refining break-even point to US$83 a barrel of oil based on the Brent benchmark, the bank estimated.

Deutsche Bank forecast that Brent crude will average US$95.75 a barrel this year.

Sinopec Shanghai last month received 93.9 million yuan of subsidies for last year and 247.28 million yuan for this year's first-quarter.

Meanwhile, Sinopec Yizheng Chemical Fibre, the world's sixth-largest polyester producer, posted a 44.86 per cent decline in net profit to 22.31 million yuan last year, far below the 97.07 million yuan mean estimate of four analysts in a Thomson Financial poll.

The result came after a 10-fold rise year on year in employee reduction expenses to 101.71 million yuan as jobs axed rose to 1,351 from 170.

Turnover fell 0.76 per cent to 17.17 billion yuan, while gross margin rose to 3.61 per cent from 3.19 per cent.

Yizheng said despite better profitability in the first half, sharp rises in crude prices since August raised its raw material costs and squeezed its margins. It operates in an industry with weak pricing power due to years of overcapacity.