China Petroleum & Chemical Corp, Asia's largest oil refiner, rose in Hong Kong trading after it posted earnings that beat analysts' estimates and crude oil prices dropped the most in more than three years.

Sinopec, as China Petroleum is known, rose 3.03 percent to HK$7.82. First-half net earnings fell 77 percent to 8.26 billion yuan, the refiner said Sunday, beating the median estimate of 7 billion yuan in a Bloomberg analyst survey.

The price of oil, Sinopec's biggest cost, fell 5.4 percent in New York last Friday.

The refiner's shares have retreated 34 percent this year, compared with a 24 percent decline in the city's benchmark Hang Seng Index, as the central government put curbs on fuel prices and prevented the company from passing on record crude oil costs to consumers.

The mainland is controlling fuel prices to limit their impact on inflation in the world's fastest-growing major economy.

The earnings "came in marginally ahead of our expectation, we think that the market will likely view them positively," Cheng Khoo and Gordon Wai, Hong Kong-based analysts at Lehman Brothers Holdings Inc, said in a report yesterday. "The worst is likely over for Sinopec, as crude oil prices have declined from a peak of $147 a barrel. We think that crude prices are likely to continue easing through early 2009."

In the second quarter, Sinopec's profit slumped 87 percent to 2.19 billion yuan, according to Bloomberg calculations made from the first-half figures.

Sinopec's refining business lost 46 billion yuan in the first half, compared to a profit of 5.73 billion yuan a year earlier, it said in a separate statement to the Shanghai stock exchange yesterday. Refining costs reached 460 billion yuan, 63 percent of all expenses.

The company lost 752 yuan to process each metric ton of crude oil in the first six months, compared with a profit of 265 yuan a ton during the same period last year, it said.

"The second half should look a little better, as crude should ease and the government may further increase fuel prices," Yin Xiaodong, an analyst with Citic Securities Co, said earlier.

First-half total capital expenditure was 36.5 billion yuan, of which exploration and development spending stood at 21 billion yuan, it said. The company said it will speed up explorations in "key regions" such as Tahe in the Xinjiang Uygur autonomous region and northeastern Sichuan in the second half.

Profit in the first three quarters may fall by more than 50 percent because of crude oil costs and government control on fuel prices, Sinopec said.

"We see significant value in Sinopec's asset in the longer term, realizing, however, that this could take a while," Morgan Stanley analyst Sara Chan said in a report yesterday. "Until then, the stock price could see significant volatility, driven by oil price movement and news flow related to domestic product price reform. Going into the second half, we do not expect significant improvement in its earnings trends."

Bloomberg

(HK Edition 08/26/2008 page3)