(Bloomberg) — Sinopec saw a modest increase in profit during the first half of the year, driven by gains in its upstream operations that helped counterbalance the effects of a slowing Chinese economy and significant declines in its core fuel processing and sales businesses.
For the first six months, Sinopec’s net income climbed 1.7% year-on-year to 35.7 billion yuan ($5 billion), despite a 1.1% decrease in revenue, which totaled 1.58 trillion yuan. The earnings report, released on Sunday, highlights a more complex picture when examining operating profit, revealing the significant challenges faced by China’s largest oil refiner.
While exploration and production saw a 15% increase due to higher international crude prices and increased output, oil processing fell by 38% and marketing and distribution dropped by 14%. Diesel, a key fuel used in construction, was notably weak. The company’s chemicals sector continued to operate at a loss, although the losses were smaller than before.
Crude refining has been one of the worst-performing sectors in China. According to the statistics bureau, the industry accumulated losses of 16 billion yuan ($2.2 billion) in the first half of the year. Factors such as higher prices and increased transportation costs due to conflicts in the Red Sea have contributed to these losses.
The decline in crude refining is also attributed to long-term trends linked to the energy transition. The rise of electric vehicles and gas-fueled trucks is reducing gasoline consumption, which constitutes about a quarter of China’s domestic oil market. Additionally, weakened diesel demand is tied to the ongoing property crisis in China, and capacity expansions amid a broader economic slowdown have led to an oversupply of petrochemicals.
Unlike its upstream-focused state rivals, Sinopec’s extensive refining operations make it more sensitive to fluctuations in China’s industrial and retail consumption. PetroChina Co. is set to release its earnings later on Monday, following a strong first quarter, while Cnooc Ltd. will report on Wednesday.
Sinopec’s stock rose by up to 2% in Hong Kong after the earnings report met expectations. The company is optimistic about the second half of the year, anticipating improvements in China’s economy and growth in demand for natural gas and chemicals.
The company plans to maintain oil processing and product sales at levels similar to the first half of the year, with a shift towards more gasoline and jet fuel, and less diesel. Chief Financial Officer Shou Donghua noted that this change reflects improving demand for transport fuels.
Senior Vice President Wan Tao also promised to address the losses in the chemicals business by adjusting product offerings and controlling costs.
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