Sinopec Shanghai Petrochemical, which runs the second-largest oil refinery of China Petroleum & Chemical (Sinopec), says it remains profitable overall because refining losses due to state fuel price controls are offset by better profitability in chemical production.
The company is expanding its refining capacity and plans to enlarge downstream chemicals output capacity to maintain or enlarge its market share and pave way for better refining profits when Beijing eventually lifts controls over retail fuel prices.
'China is still in the process of transitioning to a market-based economy and the direction of the fuel price policy is clearly moving towards market pricing,' said vice-chairman Wang Zhiqing.
Beijing has not lifted retail fuel prices since a 4 per cent rise in February and a 5 per cent increase in early April, despite the fact that crude prices have hovered at higher levels after surging some 20 per cent in the first quarter, resulting in industry-wide refining losses from May.
Chief financial officer Ye Guohua said at current prices for crude oil, fuel and chemicals, the firm remains profitable as refining losses were made up for by higher profit margins on chemicals sales. It posted a 5.8 per cent year-on-year decline in net profit to 1.43 billion yuan (HK$1.75 billion) in the first half, with refining operations alone posting an operating profit of 100 million yuan.
Despite the negative impact from state price controls, the firm produced 10 per cent more petrol and 33 per cent more diesel year-on-year in the first half, though chemical production was flat. It processed 5.7 million tonnes of crude oil, 15 per cent higher year-on-year.
Wang said the flat chemicals output was due to facilities' maintenance, adding that the output ratio for fuel and chemicals could be adjusted to only a small extent due to limitations on the chemical transformation process.
Sinopec's net profit declined 5.8 per cent in the first half to this amount, in yuan