Refining losses hit China's PetroChina, Sinopec

Thu Apr 26, 2012 9:57am EDT
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By Charlie Zhu and Alison Lui

HONG KONG (Reuters) - Hefty refining losses continued to weigh on profits at Chinese state oil giants PetroChina (0857.HK: Quote) and Sinopec Corp (0386.HK: Quote) in the first three months of the year, with the latter posting a worse than expected 35 percent drop in earnings.

But the worst may be over because the Chinese government raised gasoline and diesel prices twice in the first quarter, and crude prices may have peaked for this year, some analysts say.

"This should mark the bottom of their earnings cycle," said Gordon Kwan, head of Energy Research at Mirae Asset Securities.

"They came too late to save the first quarter but they should boost the second quarter revenue," Kwan said, adding that both companies should also see better petrochemical margins in the next few months.

Chinese refiners cannot fully pass on higher crude costs to consumers because the government controls oil product prices to curb inflation.

Fuel price hikes in China are often smaller, and implemented later than required under a government-set formula that tracks changes in global crude costs.

Sinopec said on Thursday that its net income fell to 13.41 billion yuan ($2.13 billion) in the first three months from 20.6 billion a year earlier. That missed the average forecast of 16.69 billion yuan given by seven analysts polled by Reuters.

Its refining division, the largest in Asia, lost 9.2 billion yuan in the first quarter. Credit Suisse expects the loss to widen to 56 billion yuan for the full year, assuming Brent crude prices average $125 per barrel this year, compared with a loss of 37.6 billion yuan in 2011.   Continued...