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Sinopec trims costs to rake in US$7b

By Wang Yu (China Daily)
Updated: 2007-04-11 09:49

Asia's top refiner Sinopec yesterday posted a net profit of 53.9 billion yuan (US$7 billion) for 2006, up 30.05 percent, as it kept costs down and increased revenue across the board. Its sales exceeded 1 trillion yuan for the first time.

Analysts said the firm's winning streak was likely to continue this year and the next.

"Sinopec has done a good job of trimming operating costs and enhancing revenue from upstream to downstream. The company successfully achieved its mission in the first quarter last year its decent financial results have not come out of the blue," Liu Gu, a veteran energy analyst with Shenzhen-based Guotai Jun'an Securities (Hong Kong) Ltd, told China Daily.

"In the downstream refining segment, Sinopec tried every means it could to lower soaring sourcing costs by purchasing sour crude and increasing sour refining capacity. Within the distribution and retail sector, it spared no efforts to enlarge market share and lower logistics and management costs," said Liu.

Sinopec has been building up pipelines in cities across China to transport oil products from refineries to sales networks a substantial cost-cutting move, Zhang Zhiguo, a senior media manager with Sinopec, told China Daily.

Sinopec also benefited from robust market demand for petrochemicals last year, and a high value-added petrochemical product portfolio contributed to its overall business performance, Liu said.

And there may be even brighter business prospects in store for Sinopec this year and next, said Yin Xiaodong, an oil analyst at CITIC Securities Co.

"That's because of the firm's overwhelming market share in the retail sector. The maturing sales networks and logistics system are important advantages for Sinopec," Yin said. Sinopec owns more than 28,000 filling stations across the country.

Moreover, the firm's Puguang and Cangxi gas fields in Sichuan Province will bring stable profits in the long run, given the country's consistent policy to raise the price of natural gas, Yin said.

Robust demand for petrochemical products will also drive the company's downstream business forward in 2007 and 2008, although there may be an adjustment after 2009 due to redundant capacity from Asian and Middle Eastern countries, Liu from Guotai Jun'an said.

Sinopec's 2006 refining loss widened to 25.3 billion yuan from 3.54 billion yuan a year earlier. The firm, which imported 70 percent of its crude last year, received 5 billion yuan in subsidies from the government in 2006.

Operating profit from oil and gas exploration and production surged 27 percent to 76 billion yuan, the firm said.