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Refiners continue to struggle

By Wan Zhihong (China Daily)
Updated: 2008-07-02 09:22

A Sinopec gas station worker fills up a car in Yichang, Hubei province. [China Daily]

The recent price rise of refined oil products cannot fully offset domestic refiners' losses caused by surging crude prices, say industry insiders.

The price increase can relieve domestic oil refiners' difficulties to some degree but it won't put them back in the black, said Zhou Dadi, deputy director of China Energy Research Society.

China's top economic planning body, the National Development and Reform Commission (NDRC), last month announced the price of gasoline and diesel would go up by 1,000 yuan per ton from June 20, and the price of aviation kerosene would increase by 1,500 yuan per ton.

The move can narrow the gap caused by the high crude prices on the international market and the relatively low prices of domestic refined oil products. The price gap has dented China's economic development, he said.

Before this round of price rise, the last time China adjusted gasoline and diesel prices was in November 2007, when the price of gasoline, diesel and aviation kerosene was raised by 500 yuan, or 9 percent, a ton. At that time the global crude price was around $90 per barrel. However, crude prices surpassed $130 per barrel last month and are now hovering around $140.

Zhou's view was echoed by Liu Gu, an energy analyst with Guotai Jun'an Securities in Shenzhen. "The country's two leading oil companies, PetroChina and Sinopec, will continue to see losses in their refining business even after the price hike."

The Financial Times recently ranked PetroChina second among global companies in terms of market value.

Said Liu: "For the country's largest oil refiner Sinopec, we estimate the company will suffer 101 billion yuan in refining losses for the full year. For PetroChina, which is the country's largest oil company but with less refining capacity than Sinopec, we estimate the loss to be around 80 billion yuan for the full year."

In the first quarter of this year, Sinopec lost over 20 billion yuan in its refining business. PetroChina's net profit in the first three months plunged over 30 percent, with refining losses an important factor for the drop in earnings.

"In our calculation, this round of refined oil price hike will result in a gain of 0.14 yuan per share for PetroChina and 0.41 yuan gain per share for Sinopec."

According to PetroChina and Sinopec, the fuel price rise eased the shortage of refined oil products on the domestic market to some extent but supply is still under strain, with world prices still much above the domestic levels and going even higher.

Chinese oil refiners suffered a loss of about 3,000 yuan on every ton they produced before the price rise. Some refiners, squeezed by huge losses, were forced to halt or suspend production, which triggered a supply crunch and long queues at service stations.

Both PetroChina and Sinopec will continue to refrain from exporting oil products, while imports are expected to hit record levels this year.

China National Petroleum Corp (CNPC), the parent of PetroChina, said it plans to increase the supply of refined oil after the government raised fuel prices. The company will process 880,000 tons, or about 3 percent more crude oil, in the third quarter than in the same period last year.

CNPC will also produce 580,000 tons more oil products in the third quarter from a year earlier. It produced 17.6 million tons of gasoline, diesel and kerosene last year.