China Petroleum & Chemical Corp, Asia's biggest oil refiner, said crude oil processing grew at the slowest pace in three years in 2005 as the cost of its raw material climbed.

China Petroleum, or Sinopec, increased refining of oil 5.3 per cent to 139.9 million metric tons in 2005, the Beijing-based company said on its website yesterday. Processing rose 14 per cent last year and gained 10 per cent in 2003.

China's government caps prices of gasoline and diesel, limiting Sinopec's ability to pass on higher costs to customers as crude oil prices surged. Sinopec, which supplies 77 per cent of the fuel sold in the country, received 9.42 billion yuan (US$1.2 billion) in government payments last year to cover its raw material costs.

"Their profitability last year would have taken a hit, if not for the government subsidies," said Belle Liang, head of China research at Core Pacific-Yamaichi International in Hong Kong. "Their refining business has been hurt by high oil prices."

The government payment will contribute to 2005 earnings, Sinopec told the Shanghai Stock Exchange in December. The subsidy is 14 per cent of 2004 operating income at Sinopec.

Sinopec shares in Hong Kong rose for the first day in three, gaining as much as 12.5 Hong Kong cents, or 3.1 per cent, to HK$4.225. The stock has risen 38 per cent in the past six months, more than the 5.9 per cent increase in the benchmark Hang Seng index.

Sinopec's domestic sales of oil products rose 10.5 per cent to 104.6 million tons last year, the statement said. Gasoline output fell 2.5 per cent to 22.9 million tons and diesel increased 7.9 per cent to 54.9 million tons.

Production of ethylene, a raw material used to make plastics, rose 31 per cent to 5.3 million tons.

Sinopec's crude oil production increased 1.7 per cent to 278.8 million barrels and natural gas output rose 7.2 per cent to 221.9 billion cubic feet, the company said.

The government controls fuel prices, allowing fluctuations of no more than 8 per cent from the set level. An increase in gasoline and diesel prices would boost manufacturing costs and inflation.

The government increased gasoline and diesel prices three times last year, by a total of 16 per cent, compared with oil's 40 per cent surge in New York. Price controls may have been to blame for fuel shortages that affected southern China last summer, the International Energy Agency said in August. (US$1=HK$7.75)

(China Daily 01/19/2006 page10)