China’s largest petroleum company, Shanghai Petrochemical Company Limited (SHI), posted net earnings of RMB 1 billion ($129 million) in the first six-months of 2009 helped by a lower cost of sales. Basic earnings were RMB 0.139 ($1.79) per share in contrast to a basic loss of RMB 0.050 ($0.65) in the first half of 2008.

Crude oil is the company’s major raw material and accounted for 59.32% of cost of sales in the first half. With the significant drop in average price and volumes of crude oil, total cost of crude oil processed decreased 59.33% to RMB 10.4 billion ($1.34 billion).

Year-on-year, the average unit cost of processing crude oil almost halved to RMB 2,543.77 ($328) per ton. Energy and power costs decreased 15.7% to RMB 774.8 million ($99.95 million). Consequently, cost of sales decreased 48.55% to RMB 17.60 billion ($2.27 billion), accounting for 92.25% of the net sales.

Net sales were down 40.91% to RMB19.1 billion ($ 2.46 billion) over the same period last year, among which revenues derived from petroleum products, intermediate petrochemicals, resins and plastics and synthetic fibers decreased by 45.29%, 61.70%, 32.91% and 38.86% year-on-year respectively. Such decreases were mainly attributable to decreases in product prices on the back of declining raw material and energy prices, as well as decreases in sales volumes.

Refined oil prices are government controlled. Hence, any decrease in raw material prices leads to a decline in selling prices.

Shanghai has closed many of its plants due to the global recession. During the first six months, the company processed 4.2 billion tons of crude oil, a decrease of 17.20% year-on-year. Of the total processed amount, imported crude oil and offshore crude oil amounted to 3.6 billion tons and 546,100 tons, respectively.

Production of diesel and jet fuel was down 32.67% and 10.27% to 1,272,300 tons and 302,300 tons, respectively. The company produced 439,300 tons of ethylene and 236,700 tons of propylene, down 8.65% and 10.68% respectively.

Production of synthetic fiber monomers, synthetic fiber polymers and synthetic fibers decreased 12.32%, 5.06% and 18.42% to 427,800 tons, 289,200 tons and 120,500, tons respectively. However, production of synthetic resins and plastics increased by a modest 0.82% to 540,500 tons. Production of gasoline was also up 4.65% to 436,700 tons.

Management guidance

In the second half of 2009, management is not too optimistic about the operational situation. Chinese oil exports are expected to decline. International crude oil prices are likely to go up further quarter-by-quarter.

The Chinese government may continue to exercise control over the pricing of domestic refined oil products. Management expects inadequate plant utilization for certain downstream products.
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