July 31st, 2012 | Global Times Sinopec refinery unit posts loss
Sinopec Zhenhai Refining & Chemical Co, a top refining unit of China’s largest oil producer in terms of sales revenue, reported losses of 423 million yuan ($66.3 million) in its refining business in the first half year, the China Business News (CBN) reported Monday, citing a company executive.
The Zhejiang Province-based refiner reported net profit of 20 million yuan in its refining business in 2011 and a total profit of 5.85 billion yuan, despite the refining sector suffering losses in the year.
An official from Zhenhai Refining declined to comment on the figures, saying that “the whole refining business of Sinopec is suffering.”
Li Li, a senior information manager from ICIS C1 Energy, told the Global Times that high crude prices of as much as $120 per barrel in the first quarter this year are the major reason behind refineries’ losses.
Though the prices have been declining since April, refineries’ profits are still affected given that most of them make the crude oil purchase ahead of time.
Crude oil accounts for over 90 percent of refineries’ costs. And Li noted that as long as international crude oil prices remain above $80 per barrel level, refineries will have to operate with very thin profit margins. Currently international crude oil prices are about $100 per barrel.
In the first quarter this year, Sinopec reported losses of 9.17 billion yuan it its refining sector, and another major oil producer, China National Petroleum Corp, reported 10.4 billion yuan of losses in its refining business.
Li said that the prospect in the second half will continue to be gloomy as international crude prices are expected to remain around $100 per barrel.
Analysts noted that for big energy companies like Sinopec and PetroChina, losses in the refinery sector can be partly compensated by profits generated in other sectors like crude exploration or oil product sales. However, for privately owned smaller refineries, life will be even harder.
The Zhenhai unit has a refining capacity of 23 million tons of crude oil each year, and the unit accounted for 5 percent of the total crude refined in China in 2011. It managed to report a profit of 139 million yuan from the sales of oil by-products, according to CBN.
Hu Huichun, an oil industry analyst with energy information provider Sublime China Information Co, said that currently only 26.8 percent of private refineries in Shandong Province, where about 60 percent of China’s private refineries are located, are operating in order to avoid losses.
But Hu expects the sector to turn better in the third quarter, as gasoline and diesel demand will climb up during the harvest season. “The government may raise the retail oil product prices in August.”
By Liang Fei