Think-3 Investment Idea Sharing Platform

Sinopec Shanghai Petrochemical Issues Warning on Second Half

By ARIES POON DOW JONES NEWSWIRESAugust 26, 2005 4:27 a.m.

HONG KONG -- Sinopec Shanghai Petrochemical Co., China's largest ethylene producer by capacity, said higher oil prices and slower demand for petrochemical products will cut profit for the industry in the second half of this year.

The company gave its forecast after reporting a 16% rise in first-half net profit to 1.76 billion yuan ($217.4 million), as sales growth offset high oil costs. The average pretax selling price of the group's major products, such as intermediate petrochemicals and synthetic fibers, rose between 14% and 36% from a year earlier, on strong demand for petrochemical products.

"Given the surge in oil costs and the slowdown of domestic demand for petrochemical products in the second half of 2005, ... the industry's profitability level will significantly decline," Chairman Rong Guangdao said in a statement.

Mr. Rong said the excess demand for petrochemical products in China will subside in the second half, with large ethylene projects recently set up in Shanghai and Nanjing. Ethylene is used in the manufacture of plastics.

In the first half, Shanghai Petrochemical's diesel output rose 18% to 1.6 million tons, and its jet fuel output rose 9.2% to 360,900 tons. Gasoline output, however, fell 12% to 417,700 tons. The company didn't provide a reason for the decline.

The company said revenue in the first half rose 23% to 21.89 billion yuan from 17.78 billion yuan. It processed 4.78 million tons of crude oil in the period, 5.5% more than a year earlier. Its weighted-average cost of crude oil rose 35% from a year earlier to 2,875.79 yuan per ton.

"While crude-oil costs continue on its upward trend, margins for chemicals are still being squeezed despite a recent price rebound," Citigroup said, the group has put the petrochemical company stock on "hold".

Goldman Sachs, however, said the company "should remain a beneficiary of China's oil-product pricing reform longer term." Goldman Sachs has a "neutral" rating on the stock.

Shanghai Petrochemical, which processes crude oil into a range of petroleum products, is a listed unit of Asia's largest refiner by capacity, China Petroleum & Chemical Corp., also known as Sinopec.

Its sister firm, Sinopec Zhenhai Refining & Chemical Co., said Friday its first-half net profit fell 1.2% from the year-earlier period to 1.26 billion yuan as high oil prices squeezed its refinery margins.

posted by Henry @ 3:40 PM