PetroChina (中國石油天然氣), the traded unit of the country’s leading oil and gas producer, is expected to report that its first-half net profit fell by at least a third, analysts say, as losses in its refining business eroded gains from surging crude oil prices.
Even last year when PetroChina’s market value briefly topped US$1 trillion by some calculations trouble was brewing.
While other global oil giants are reporting record profits, Chinese government price controls prevent PetroChina and other domestic refiners from passing on higher costs for crude oil to consumers. So their refining operations are bearing heavy losses, despite billions of dollars in subsidies.
On Monday, Asia’s biggest refiner, China Petroleum & Chemical Corp (中國石油化學), or Sinopec, reported a 77 percent plunge in net profit, to 8.3 billion yuan (US$1.2 billion), in the January-June period. That compared with 37.8 billion yuan in net profit a year ago.
The precipitous decline came despite 33.4 billion yuan (US$4.9 billion) in subsidies in the first half of the year, Sinopec said.
In the first quarter, PetroChina reported that net profit plunged 31.5 percent to 28.8 billion yuan. First-half results are expected today.
Qiu Xiaofeng, a petroleum analyst at China Merchants Securities in Shanghai, estimates that PetroChina will report 48.5 billion yuan in net profit for the first half, down about 40 percent from 81.8 billion yuan in the first half of last year.
“Chinese refiners are unable to match gains from the high price of crude oil in international markets due to controls on retail prices,” Qiu said.
Qiu is among analysts forecasting that, now that the Olympics have finished, Beijing will move to raise retail fuel prices in coming weeks to at least partly reflect rising costs for Chinese refiners, following increases of up to 18 percent in June.
“They should take advantage of this opportunity to adjust retail prices,” he said.
Yet, other policy moves could also either help, or hurt.
PetroChina was valued, according to some calculations, at more than US$1 trillion following its mammoth share offering in Shanghai last October, making it the world’s most expensive company by market capitalization, though not the most profitable.
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