Sinopec sees rising demand in second half

HONG KONG Sun Aug 26, 2012 8:28am EDT

HONG KONG (Reuters) - Refiner and oil and gas producer Sinopec Corp (0386.HK) said it saw growing demand for its products in the second half of the year, after losses at its refining and chemicals businesses led to a 46 percent drop in second-quarter net profit.

April-June net profit at Sinopec (600028.SS) (SNP.N) dropped to 11.09 billion yuan ($1.75 billion) from 20.5 billion yuan a year earlier, based on Reuters' calculations.

The results, hurt by government cuts in domestic fuel product prices in the second quarter and weak demand for chemicals products as a result of a slowing economy, beat an average forecast of 8.43 billion yuan by six analysts polled by Reuters.

"Looking into the second half of the year, the Chinese government is expected to implement a number of fiscal and monetary policies in pursuit of steady economic growth, driving infrastructure investment and domestic consumer spending," the company said.

"Given the macro-control policies to be in place in the second half of 2012, we expect the domestic demand for refined oil products and chemicals will steadily increase," it added.

"The stock might open positively tomorrow morning. Second half of 2012 will show a reversal of the refining losses and an improvement in chemical," Simon Powell, Head of Asian Oil and Gas Research at CLSA wrote in a note to clients.

Chinese refiners cannot fully pass on higher crude costs to consumers because the government controls oil product prices to help curb inflation.

For the first six months, Sinopec posted a net profit of 24.50 billion yuan, down 40.5 percent year on year, it said in a filing with the Hong Kong stock exchange.

The decline was limited by higher profits at its exploration and production unit, which made a first-half operating profit of 40.46 billion yuan versus 34.65 billion yuan a year earlier.

REFINING LOSS

Sinopec had a refining loss of 18.5 billion yuan in the first half, compared with a 12.2 billion yuan loss a year ago.

Its chemicals business posted an operating loss of 1.25 billion yuan in the first half, against an operating profit of 16.34 billion yuan a year earlier, due in part to weaker prices in China where the economy is growing at its slowest pace in more than three years.

Unlike domestic peers PetroChina (0857.HK) (601857.SS) (PTR.N) and CNOOC Ltd (0883.HK) (CEO.N) - which derive most or all of their revenue from exploration and production - Sinopec is heavily focused on downstream refining and marketing.

Sinopec processed 110 million tonnes of crude oil, up 1.1 percent year on year. The company has said it aims to process 225 million tonnes of crude this year.

Its oil and gas output rose 6.4 percent year on year to 211.42 million barrels of oil equivalent (boe) in the first half, with crude output climbing 4.3 percent and natural gas output rising 14.1 percent.

(Editing by Ian Geoghegan and Helen Massy-Beresford)

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