UPDATE 1-Sinopec expects better Q2 earnings, sources say

Fri Apr 27, 2012 1:00am EDT

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HONG KONG, April 27 (Reuters) - Sinopec Corp, Asia's largest refiner, expects earnings to improve in the second quarter after posting a first-quarter profit that missed estimates because of massive losses from processing crude oil, people briefed by the company said.

"They (Sinopec management) are hinting the worst might be over for them. The second quarter at least is not going to be as bad as the first," said one person who attended the company's earnings conference call on Friday with analysts and investors.

Officials at Hong Kong-listed Sinopec said they are optimistic about the second quarter after the Chinese government raised oil product prices in February and March and demand for chemicals started to recover, according to another person at the briefing.

They requested anonymity as they needed to brief their clients on Sinopec's results first. The conference call was off-limits to the media.

Sinopec did not issue any earnings guidance at the call, spokesman Huang Wensheng said.

Company officials said the latest hike in Chinese fuel prices has eased the pressure on refining margins, according to Huang.

Shares of Sinopec gained 0.73 percent at midday, roughly in line with the broader stock market.

Sinopec reported a 35 percent drop in first-quarter profit, dragged down by losses from selling diesel and gasoline at state-controlled prices.

Net income reached 13.41 billion yuan ($2.13 billion) in the first three months compared with 20.6 billion a year earlier, the company said on Thursday after markets closed. That missed the average forecast of 16.69 billion yuan by seven analysts polled by Reuters.

Chinese refiners cannot fully pass on higher crude costs to consumers because the government controls oil product prices to curb inflation. Fuel price hikes in China are often smaller, and implemented later, than required under a government-set formula that tracks changes in global crude costs.

Sinopec's refining division had a loss of 9.2 billion yuan in the first quarter, after reporting a loss of 37.6 billion yuan in 2011.

Operating profit at Sinopec's chemicals segment dived 86 percent to 1.31 billion yuan in the first quarter, with the company citing more expensive raw materials such as naphtha and sluggish global prices of chemical products.

"Petrochemical prices have already stabilized, and (crude) oil prices appear to have softened in the second quarter, and naphtha costs are under control. They pretty much hinted that the second quarter will be better," said one of the sources, quoting Sinopec officials as saying.

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