Sinopec Reports First-Half Profit Slump on Lower Oil Prices
(Bloomberg) -- Sinopec posted a slump in first-half profit as declining oil prices, lower output of some products, and weaker margins combined to hurt China’s biggest refiner.
Net income fell 36% to 23.75 billion yuan ($3.3 billion) in the six months through June, according to a filing. The company, which is also known as China Petroleum & Chemical Corp., had previously guided investors that profits were set to fall.
The company also said it decided to lower its full-year capital spending plan by about 5%. It had previously targeting expenditures of 164.3 billion for the year, and spent 43.8 billion yuan over the first six months.
Sinopec has been contending with a number of challenges this year. The company has reported lower production of both gasoline and diesel, as the rapid spread of electric vehicles has undermined demand for the transport fuels. At the same time, the industry has grappling with overcapacity and intense competition, with Beijing expected to tighten controls over inefficient refiners.
In the second half of the year, the company expects demand for natural gas and chemical products to grow in China, while refined oil products will continue to be challenged by alternative energy sources.
Sinopec sets its second-half target for oil processing at 130 million tons, up from 120 million in the first six months. It’s aiming for 89.8 million tons of refined oil products sales, compared to 112 million in the first half of the year.
On global markets, crude benchmark Brent averaged about $71 a barrel in the period, compared with $83 a year earlier. The lower import prices have reduced the value of inventories, while easing feedstock costs. Drilling activities have been stable, supported by Beijing’s goal of ensuring energy security.
The company’s mainstay refining unit saw profit slump to 2.6 billion yuan, compared with 6.4 billion yuan a year earlier, while the chemical operations reported a loss of 4.5 billion yuan, larger than the year-ago loss of 3.6 billion yuan.
Elsewhere, upstream drilling saw a 21 billion profit, lower than the 26.8 billion yuan it earned a year earlier. The marketing and distribution unit has also been pressured by from lower prices, reporting a drop in profit to 7.2 billion yuan.
(Updates with additional details on capital spending in third paragraph and second-half outlook in fifth and sixth paragraphs.)
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