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October 30, 2009

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Sinopec not likely to repeat strong climb in quarterly profit

TOP Asian oil refiner Sinopec Corp will struggle to repeat the surge in its quarterly profit as uncertainty about China's fuel price reforms and higher crude prices weigh on its outlook.

Sinopec, which posted a more than two-fold rise in third-quarter net profit, benefited from four fuel price increases in China this year, with the most recent in September.

Sinopec, China's largest refiner, is well positioned to cash in on the country's fuel price reform launched this year, which grants refiners a guaranteed profit margin if crude stays below US$80 per barrel. Rivals PetroChina and CNOOC have less refining exposure.

But with crude prices hovering near US$80 per barrel and China cutting fuel prices three times this year, analysts say the best might be over for Sinopec, which is among the world's top oil refiners by capacity.

However, China may soon raise retail fuel prices by 5 to 6 percent after benchmark crude prices rose more than 6 percent since the nation's last price move, analysts said yesterday.

"Domestic demand for oil products has stopped falling and begun to rebound (and) demand for chemical products has bounced back," the company said in a statement.

Sinopec will see higher year-on-year refined oil product sales in the fourth quarter, despite posting a loss in its refining business in October, an executive said.

Still, Sinopec's third-quarter earnings mark a huge turnaround for the state-owned refiner, which was forced to take losses at its refining operations for most of last year, squeezed between low state-capped fuel prices and soaring crude prices.

Sinopec's net profit totaled 16.55 billion yuan (US$2.4 billion) for July-September, compared with a restated 7.4 billion yuan last year. Nine analysts surveyed by Reuters had expected a profit of 16.5 billion yuan.

Sinopec's results contrast with those of PetroChina, which reported a 23.5 percent fall in its quarterly profit.

From January to September, Sinopec's crude throughput rose 2.99 percent, while its total domestic sales volume of refined products fell 5.53 percent.

Shares in Sinopec fell 1.3 percent to HK$6.63 (86 US cents) yesterday, compared with a 2.3 percent decline on the benchmark Hang Seng Index.

Sinopec rose 11.5 percent in July-September, outperforming PetroChina, which gained 1.9 percent.


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