HONG KONG: If recent analyst estimates are correct, China Petroleum & Chemical Corp may post a sevenfold surge in second-quarter profit now that the government has increased fuel prices and the nation's economic recovery has spurred a rebound in demand.

Net income at Asia's biggest refiner, also known as Sinopec, may rise to 15.8 billion yuan ($2.3 billion) from 2.2 billion yuan a year earlier, according to the median of four analysts' estimates compiled by Bloomberg News.

Beijing has raised prices of fuels such as gasoline and diesel by as much as 25 percent this year. The revised pricing mechanism has prompted new investments in the industry.

In connection with the implementation of fuel price and cost policies, The National Development and Reform Commission, the country's top economic planner, said May 8 the government will ensure a "normal profit" for refiners when crude trades below $80 a barrel. Refining margins will be reduced if crude trades between $80 and $130 a barrel, the NDRC said.

Global demand is unlikely to push prices of crude above $80 a barrel this year, so Sinopec's margins are assured, said Wang of UOB-Kay Hian. "Generally investors are very positive about the company's prospects and future profitability."

Sinopec's full-year profit may rise 66 percent to 49.4 billion yuan, according to a Bloomberg survey of ten analysts. By comparison, profit at PetroChina Co, the world's most valuable company and the country's second-largest refiner, may climb only 28 percent to 31.54 billion yuan.

In an even more dramatic contrast, earnings declined at Exxon Mobil Corp and Royal Dutch Shell Plc after the global recession cut US and European consumption. The frequency of government price intervention is also up, as Beijing has adjusted fuel tariffs five times this year, compared with twice in 2008, to reflect changes in crude prices and assure refiners a profit. The forecast of ballooning profits offers more positive signs for Sinopec, the best performer on the Bloomberg World Oil & Gas Index, which ended at least four years of refining losses as fuel prices rose and oil costs fell.

"This pricing mechanism has been a new beginning for Sinopec," said Michael Yuk, an analyst at Sun Hung Kai Financial in Hong Kong. "It's no longer the victim of the government trying to set oil-product prices to avoid passing on higher costs to the public."

Sinopec gained 3.45 percent to close at HK$6.90 yesterday while the Hang Seng Index rose 1.9 percent.

Sinopec is scheduled to report earnings on Sunday (August 23) and PetroChina on August 28.

China Daily - Agencies

(HK Edition 08/21/2009 page3)