Sinopec’s Profit Growth Surpasses PetroChina on Smaller Oil-Refining Loss

China Petroleum & Chemical Corp. (386), Asia’s biggest refiner, used crude from its stockpiles to keep oil costs in check as it ramped up fuel production to meet demand in the world’s second-largest economy.

The Hong Kong-listed company known as Sinopec said yesterday first-quarter profit rose 25 percent from a year earlier to 20.6 billion yuan ($3.2 billion). That beat the 19.9 billion-yuan median estimate of five analysts surveyed by Bloomberg and surpassed rival PetroChina Co.’s 14 percent gain.

“Sinopec’s oil-stockpiling capacity allowed the company to use cheaper crude for a longer time,” Yin Xiaodong, the chief oil analyst at Beijing-based Citic Securities Co., said by telephone after the earnings announcement.

Fuel sales rose 15 percent and Sinopec’s losses from turning crude into gasoline and diesel were less than a tenth of PetroChina’s. Earnings growth at China’s biggest oil companies lagged behind Exxon Mobil Corp. (XOM)’s 69 percent gain and a 60 percent profit increase at Royal Dutch Shell Plc, which aren’t restrained by government controls on fuel prices.

“Sinopec is vulnerable to domestic pricing controls amid the nationwide inflation clampdown,” Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong, said by e-mail.

Sinopec shares fell 0.3 percent to HK$7.82 in Hong Kong trading, while the benchmark Hang Seng Index dropped 0.4 percent. The stock has climbed 27 percent in Hong Kong the past year, compared with the 14 percent gain in the Hang Seng. PetroChina advanced 25 percent in the same period.
Refining Losses

Refining losses at Sinopec reached 576 million yuan and 6.1 billion yuan at PetroChina in the first three months, after the government raised fuel prices by less than 5 percent while New York crude averaged 20 percent higher from a year earlier.

“We forecast China will raise prices further by 15 percent before the year is out, and the next hike is due in early May.” Kwan of Mirae Asset said.

China’s fuel-price mechanism allows the government to adjust tariffs when crude costs change more than 4 percent over 22 working days. The state controls diesel and gasoline prices to curb inflation that reached 5.4 percent last month, the fastest pace since 2008 and higher than the full-year target of 4 percent.

Fuel prices in China were last increased by as much as 5.8 percent on April 7, after crude costs advanced to a 30-month high. The government raised tariffs as much as 4.6 percent on Feb. 20.
Domestic Demand

Sinopec’s crude output fell 5.8 percent in the first quarter to 10.98 million tons because of maintenance at overseas fields. Natural gas output climbed 30 percent to 3.63 billion cubic meters.

Fuel sales rose to 54.3 million metric tons while production increased 6.2 percent to 31.3 million tons, Sinopec said in its earnings statement.

China’s apparent fuel consumption, including output and net imports and excluding inventories, gained 12 percent from a year earlier to a record 21.73 million tons in March, according to the National Development and Reform Commission, the country’s top economic planner.

Sinopec will ensure supplies of diesel for farmers, its parent China Petrochemical Corp., known as Sinopec Group, said in an e-mailed statement yesterday. The group said April 19 it halted exports to ensure domestic supply as crude costs and price controls caused private refiners to cut production.
Overseas Assets

Sinopec said March 28 it will cut costs and accelerate its expansion overseas as government controls prevent the company from passing on higher oil prices to customers.

The refiner’s parent spent $11 billion buying assets in Australia and South America in the last 12 months. On April 21, the group agreed to pay $1.5 billion for a 15 percent stake in an Australian liquefied natural gas venture and buy fuel from the project over two decades.

Sinopec Group received approval from Brazil’s oil regulator to buy 20 percent stakes in two blocks from state-controlled Petroleo Brasileiro SA, the regulator said on April 26.

The Chinese company is also in talks with Spain’s largest oil company, Repsol YPF SA, on joint ventures around the world, Repsol said on Jan. 4. In October, Sinopec Group agreed to pay $7.1 billion for a 40 percent stake in Repsol’s Brazilian unit.

In December, the Beijing-based company said it would buy Occidental Petroleum Corp.’s Argentine oil and gas unit for $2.45 billion, marking its first investment in the Latin American country.
Sinopec Group Chairman

China earlier this month appointed Fu Chengyu to the newly created position of chairman at Sinopec Group after he presided over a fivefold profit increase at smaller state-controlled oil producer Cnooc Ltd. (883)

“Fu will bring much more focus on upstream for the company, domestically and particularly internationally where Fu was particularly active with Cnooc,” Neil Beveridge, a Hong Kong- based senior oil-and-gas analyst at brokerage Sanford C. Bernstein & Co. Inc., said by phone.