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Sinopec hit by refining losses in Oct

By Wan Zhihong (China Daily)
Updated: 2009-10-29 08:19

The new oil pricing mechanism has helped prevent huge losses for the company.[China Daily]

Asia's largest refiner Sinopec incurred losses in its refining business in October because increases in domestic fuel prices haven't caught up with gains in crude costs, a company official said yesterday.

Crude prices have seen rapid growth this month but the government made no changes in gasoline and diesel prices, which has caused the refining losses, said the official with Sinopec, who declined to be named.

China raised domestic prices of gasoline and diesel three times between January and June compared with once in the third quarter. Crude oil in New York has risen by around 80 percent this year.

"On our calculation, it would be the third consecutive month that Sinopec's refining business suffered a loss," said Qiu Xiaofeng, analyst with China Merchants Securities, adding that the two recent price hikes under the new refined oil pricing mechanism were smaller than expected.

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Domestic fuel prices need to be raised by 400 to 500 yuan per ton under the current crude price levels for Sinopec to incur no losses in its refining business, said Qiu.

Commenting on whether the company's refining business could make a profit in the fourth quarter, Qiu said this still depends on how much the government would raise domestic fuel prices.

The gap between global oil prices and relatively low refined oil prices has long been a headache for domestic refiners. Last year when international oil prices rose to record highs of $147 per barrel, domestic refiners all made huge losses and many halted operations.

"Compared with last year, there is no doubt that Sinopec will see much better performance in its refining business this year because of a milder crude price," said Lin Boqiang, a professor at Xiamen University. The new mechanism in domestic oil pricing system adopted this year has prevented the company from making huge losses in its refining business, he said.

But the company's refining business may still be in the red, said Lin.

In contrast with refining losses, market statistics showed that Sinopec processed 32.83 million tons of crude in September, up 14 percent year-on-year.

Market insiders said the company's oil processing volume would continue to be at a high level. Thanks to the economic stimulus package, oil-product sales in the fourth quarter will be higher than a year ago as domestic demand is recovering, said analysts.