Sinopec Losses Widening Under Fuel Price Controls

While profits pile up for the world’s petroleum firms with the continuing rise in the international price for crude oil, what’s piling up for Chinese oil giant Sinopec is losses, thanks to the gap between what it has to pay for the stuff and what it can charge in its home markets, over neither of which it has any control. The market takes care of the first, and the Chinese government shows no sign of letting go of the second.

Sinopec’s latest quarterly financial report puts the company’s earnings per share at .077yuan, 65.78% down over the same period last year. Without a government granted subsidy of 7.4 billion yuan for the quarter, the company would actually be running in the red.

Compared with prices (after tax) in Singapore, the price gaps for imported petroleum and diesel have reached 3900 yuan per ton and nearly 6000 yuan per ton, respectively. The international price for crude oil exceeded $135 per barrel on May 22^nd and dropped slightly since then but is still hovering at around $133 per barrel.

According to statistics from PingAn Securities, the price on May 16 for 90# petroleum in Shanghai was 5480 yuan per ton, while on the same day the price for 92# petroleum in Singapore was 9860.42 yuan per ton, a difference of 4380.42 yuan per ton. The price for 0# diesel in Shanghai is 5070 yuan per ton, while in Singapore the price for 0.05%S diesel is 10403.61 yuan per ton, leaving a gap of 5333.61 yuan per ton.

Sinopec is required to guarantee the domestic supply at a low price. Sinopec Chairman Su Shulin said despite the price gap, and the tight domestic petroleum and diesel supply, the supply "won’t be broken."

In the beginning of April, Su revealed at a press conference in Hong Kong that the company had suffered a loss of 2162 yuan for each ton of petroleum it produced in March, and that the loss for each ton of diesel produced in the same month was 3000 yuan per ton.

To offset Sinopec’s losses, the government decided to refund the value-added tax levied on it’s 500,000 tons of petroleum and 1.5 million tons of diesel imported form April 1 to June 30. PetroChina will get the same deal on it’s 500,000 tons of imported petroleum and 1 million tons of diesel.

But this policy is not likely to completely relieve Sinopec’s sharply growing costs. The tax refund policy was also implemented in March, and Sinopec still suffered heavy losses, and the losses are growing.

Now the tight petroleum and diesel supply triggered by the soaring international oil prices is again spreading throughout the country.

Su Shulin admitted that the oil products supply was tight but said that Sinopec would do its best to guarantee petroleum and diesel supplies in earthquake affected areas, during the summer and during the Beijing Olympic Games. While increasing its imports, the company is also working to ensure the stable production of its own refineries.