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ASIA MARKETS: Fuel-price Hikes Hold Key To Sinopec's Future8-26-09 12:31 AM EDT | E-mail Article | Print ArticleAfter leading Chinese oil-sector shares so far in 2009, China Petroleum & Chemical Corp., better known as Sinopec, may find the going tough unless Beijing allows a sharp increase in inflation-stoking retail fuel prices, an analyst said Wednesday.
The integrated oil giant and Asia's biggest refiner, Sinopec (SNP), said earlier this week that its first-half profits more than quadrupled, as an increase in retail prices boosted the performance of the fuel marketing division.
But "the problem is that unless another retail price hike is approved, Sinopec will soon lose money once its cheap inventory is run down, as $74 crude prices are well above the effective $63 per barrel it earns from its refining activities," BNP Paribas analyst John Hetherington wrote in a report.
The brokerage currently has a reduce rating on the stock.
Still, Sinopec may indeed get its hike, with one Chinese media report suggesting an increase could come as early as Thursday.
But Hetherington said that China will have to allow an increase in product prices by a "drastic" 30% for Sinopec to maintain its margins at $8 a barrel in the coming period, even if crude-oil prices don't rise above $74 a barrel.
"Sinopec has already been able to significantly strengthen its balance sheet, which was a concern late last year, while the need for another massive year-end subsidy for the company is pretty much off the table for 2009," Hetherington said, referring to the hefty state payment the company received in 2008 to compensate for its selling petroleum products below market prices.
Sinopec shares have more than doubled in Shanghai and Hong Kong from the 52- week lows they hit in the fourth quarter of 2008. The stock has also outperformed shares of its energy peers, as well as benchmark indexes in Hong Kong and Shanghai in 2009 to date.
But in Wednesday's trading, the stock was down 1.1% in Shanghai and 0.1% lower in Hong Kong, underperforming the indexes.
The Hang Seng Index was up 0.5% at 20,545.58 just before the midday break, while the Shanghai Composite Index gained 1.5%. Elsewhere, Japan's Nikkei 225 Average gained 1.5%, South Korea's Kospi rose 0.4%, Australia's S&P/ASX 200 advanced 0.8% and Singapore's Straits Times inched up 0.2%.
(END) Dow Jones Newswires
08-26-090031ET
Copyright (c) 2009 Dow Jones & Company, Inc.
The integrated oil giant and Asia's biggest refiner, Sinopec (SNP), said earlier this week that its first-half profits more than quadrupled, as an increase in retail prices boosted the performance of the fuel marketing division.
But "the problem is that unless another retail price hike is approved, Sinopec will soon lose money once its cheap inventory is run down, as $74 crude prices are well above the effective $63 per barrel it earns from its refining activities," BNP Paribas analyst John Hetherington wrote in a report.
The brokerage currently has a reduce rating on the stock.
Still, Sinopec may indeed get its hike, with one Chinese media report suggesting an increase could come as early as Thursday.
But Hetherington said that China will have to allow an increase in product prices by a "drastic" 30% for Sinopec to maintain its margins at $8 a barrel in the coming period, even if crude-oil prices don't rise above $74 a barrel.
"Sinopec has already been able to significantly strengthen its balance sheet, which was a concern late last year, while the need for another massive year-end subsidy for the company is pretty much off the table for 2009," Hetherington said, referring to the hefty state payment the company received in 2008 to compensate for its selling petroleum products below market prices.
Sinopec shares have more than doubled in Shanghai and Hong Kong from the 52- week lows they hit in the fourth quarter of 2008. The stock has also outperformed shares of its energy peers, as well as benchmark indexes in Hong Kong and Shanghai in 2009 to date.
But in Wednesday's trading, the stock was down 1.1% in Shanghai and 0.1% lower in Hong Kong, underperforming the indexes.
The Hang Seng Index was up 0.5% at 20,545.58 just before the midday break, while the Shanghai Composite Index gained 1.5%. Elsewhere, Japan's Nikkei 225 Average gained 1.5%, South Korea's Kospi rose 0.4%, Australia's S&P/ASX 200 advanced 0.8% and Singapore's Straits Times inched up 0.2%.
(END) Dow Jones Newswires
08-26-090031ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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