China's oil refining industry facing loss pressures

Tag: oil and petrochemical products

As oil prices "even more" up, the significant positive to raise finished oil products retail price pushed by Development and Reform Commission still dies hard changing the huge losses on Sinopec, Asia's largest oil refining company. With the possibility on the cancelling on the rebate policy for the import value-added oil tax and the rising cost in the oil refining construction projects, the Chinese refining industry will face greater loss pressure.

Last week, the international oil price has exceeded 145 U.S. dollars mark, it is a matter of time that the oil prices break through 150 U.S. dollars mark, expected by the industry. Tootoo.com network market analysts believe that the global surge in oil prices has not yet ended, worried by the market, suggested by the weakening petrochemical stock. While the oil prices remain at home under control, this is potentially negative. On the other hand, China's oil refining enterprises are also affected by the recent disclosure news that the value-added tax rebates on crude oil and refined oil import may also be cancelled.

The refining segment is still very far away from reducing losses although the loss rate has decreased, after the adjustment of oil prices. The refinery will face even greater pressure if financial subsidies cancelled," one of Sinopec's high places said to a correspondent from Tootoo.com.

JPMorgan analyst Frank Li also said that if average oil price is 120 U.S. dollars per barrel, Sinopec's quarterly operating loss on refining business is as high as 31 billion yuan (about 4.5 billion U.S. dollars). "On the other hand, Sinopec's combined quarterly profits from Petrochemical exploration, production, marketing and chemical operation is only about 24 billion yuan." He believes that without additional financial assistance, or the increased refined oil retail Price, the losses will continue. Additionally, Sinopec will have to import 1.5 million tons of diesels in second quarter, which will cause about 31 billion deficit, and exacerbate the company's financial burden.

It is reported that JP Morgan has downward revised Sinopec's net profit anticipation to 18.9 billion yuan, 67% down. This expect is based on the crude oil price of 110 U.S. dollars per barrel in the remaining two quarters of this year, but hasn’t take the company’s Chemicals operating income decline into account. In order to enhance diesel production, Sinopec has reduced oil and petrochemical products in June and July.