Sinopec Pushed Into Its First Half-Year Loss by Pandemic

Sinopec Pushed Into Its First Half-Year Loss by Pandemic

Reprint from the FT – 01/09/2020

China’s biggest oil refiner hit by the effect of coronavirus on demand for fuel State-backed Sinopec reported a loss of Rmb21.7bn ($3.2bn) in the six months to the end of June. Sinopec, China’s biggest oil refiner, posted its first-ever loss over a half-year period, on the back of collapsing oil prices and the coronavirus’s impact on demand for fuel in the country. The state-backed company reported a loss of Rmb21.7bn ($3.2bn) in the six months to the end of June — the first of its kind since the group listed in Hong Kong in 2000, and far below a profit of Rmb32.2bn for the same period last year.

China’s biggest oil companies have during the past week unveiled the scale of losses resulting from the coronavirus pandemic, which continues to put pressure on its largely state-controlled energy industry even as the country enters a period of gradual economic recovery.

Sinopec processed 111m tons of crude oil in the first half, down 10.5 per cent on the same period last year, as lockdown measures to contain the spread of Covid-19 weakened demand for fuel across China. The figures come days after PetroChina, the listed-arm of China’s state-owned National Petroleum Corporation, reported a loss of just under Rmb30bn in the first half as well as write-downs of Rmb8.2bn. PetroChina said it had been “adversely affected by the sharp drop in international oil prices and a severe contraction of domestic oil and gas demand”.

Unprecedented weakness in the financial performance of China’s oil majors follows on from hits to the bottom lines of companies across the sector globally, with BP cutting its dividend for the first time in a decade earlier this month.

While global oil prices remain weak, China’s demand for fuel began to revive in April after severe lockdown measures were eased. Sinopec pointed to “increased instability and uncertainty” in the international economy in the second half of the year but highlighted an ongoing economic recovery in China, where gross domestic product returned to growth in the second quarter after a historic decline at the start of the year. “China has made significant achievements in control and prevention of the Covid-19 outbreak, and its economy has shown a stable and positive momentum,” the company said.

“As a result, it is expected that domestic demand for petroleum and petrochemical products will witness a fast recovery.” Despite economic pressures, the production of oil and gas remained strong at both Sinopec and PetroChina in the first half. Sinopec’s production of oil and gas was 225.71m barrels of oil equivalent, down just 0.4 per cent year on year, while PetroChina produced an equivalent of 833.7m barrels, up 7 per cent.

Analysts at Bernstein last month noted that China’s domestic oil and gas production had “remained surprisingly strong this year — in part because of the pressure to keep investing”. Prices in global oil markets have recovered from their lows earlier this year but are still under pressure, with Brent crude, the international benchmark, trading at $45.81 a barrel at the end of last week.