Sinopec Reports Strong First Half On Better Refining

Michael Teague  |

China Petroleum & Chemical Corp (SNP) , otherwise known as Sinopec, reported earnings over the weekend that showed profits considerably higher than the prior-year period, as Asia’s largest refiner outperformed the country’s largest oil major, PetroChina ($PTR).

Sinopec’s net income for the first half of 2013, though just shy of analyst estimates, was up nearly 25 percent on the previous year at $4.85 billion, while earnings-per-share jumped almost 18 percent to $3.94 on an adjusted basis. The company’s greatly improved first half performance can be attributed to an increased focus on refining operations that have turned last year’s $3.02 billion loss into a gain of $32.7 million dollars.

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That a refiner is outperforming a major explorer/producer has to some extent been a trend among global oil companies, as the larger integrated majors have struggled to keep up with production targets, and have been scrambling to improve their own refining segments. Though PetroChina’s refining segment during the first half didn’t come close to that of the performance of Sinopec’s, there were clear signs the company was investing more effort in that area. PetroChina’s loss from refining operations narrowed to $1.3 billion during the period, compared to a much greater loss of $3.8 billion from the year before.

Sinopec also benefitted from increases in production and overseas output, as well as the Chinese government’s allowing rates for gas and diesel to fall more closely in line with the company’s crude costs. Still, refining remained the major success story, with output just about doubling that of its competitor.

Despite the better performance, concerns about Chinese growth could be the biggest cause of concern for both Sinopec and PetroChina. Both companies lost out on weaker demand for diesel, which has been interpreted as an indicator of slower industrial activity in the country.

Shares for PetroChina were up 2.45 percent to $112, while Sinopec had shed about 0.33 percent to $74.80. Both companies have watched shares struggle in 2013, with PTR down almost 23 percent, and SNP down over 12 percent.

[Image: Sinopec building in Hong Kong. Courtesy of Flickr Creative Commons]

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