In 1H17, the Chinese economy maintained steady growth, with gross domestic product (GDP) up by 6.9% year-on-year. With abundant supply, domestic refined oil products market witnessed strong competition. According to the statistics, domestic consumption of refined oil products increased by 5.5% compared to 1H16, among which gasoline and kerosene consumption maintained strong growth momentum, and diesel consumption reversed its downward trend and realised growth year-on-year.

Domestic demand for natural gas accelerated, up by 15.2% compared to 1H16, while domestic consumption of major chemicals grew significantly, with consumption of ethylene equivalent up by 10.5% year-on-year, and gross margin for chemical products remaining strong.

Refining

Sinopec has maintained high operational utilisation rates of refining facilities. The refined oil products mix has been optimised to address market demand changes, with more high value-added products being produced. The company promoted refined oil products quality upgrading and optimised crude oil sourcing to lower feedstock cost.

In 1H17, this segment recorded earnings before interest and tax (EBIT) of RMB 29.8 billion. Excluding the impact from the floor-price policy from the same period of last year, EBIT surged by 26.7% year-on-year.

Sinopec has actively promoted refined oil products quality upgrading. Crude oil sourcing optimisation continued to lower the company’s feedstock cost, and export of refined oil products was increased moderately to help maintain high operational utilisation rates of refining facilities.

The advantages of centralised marketing took full play, and profitability of asphalt, lubricant and LPG was maintained. In 1H17, Sinopec processed 118 million t of crude oil, an increase of 1.6% compared to 1H16. It produced 74.11 million t of refined oil products, with production of gasoline and kerosene up by 1.4% and 5.9% respectively, from levels in 1H16.

Operating revenues of the compnay’s refining segment were RMB 488.2 billion, representing an increase of 23% year-on-year. This was mainly attributable to increased prices of products.

The refining margin was RMB 473.7/t, representing a decrease of 7.9% year-on-year. In 1H16, crude oil prices dropped below the lower threshold prescribed in the domestic refined oil product pricing mechanism for some period, and domestic refined oil prices were not cut during the corresponding period. In 1H17, such phenomenon did not occur, as the result the prices spread between products and feedstock narrowed compared with the same period of 2017. The segment managed to improve its refining margin by advancing oil products quality upgrading and optimising product mix.

Chemicals

Based on contribution of the marginal benefit and gross margin of chemical facilities, Sinopec optimised operations based on marginal contribution and gross margin of chemical facilities to promote profitability. The company deepened adjustments of feedstock mix to reduce chemical feedstock cost, and pressed ahead optimisation of product slate, producing more market-oriented and high value-added products, strengthened the integration among production, sales, R&D and application, and intensified efforts on R&D, production and promotion of new products. In 1H17, this segment recorded an EBIT of RMB 16.5 billion, surged by 34.9% year-on-year.

Based on contribution of the marginal benefit and gross margin of chemical facilities, Sinopec optimised operations based on marginal contribution and gross margin of chemical facilities to promote profitability. Ethylene production for 1H17 was 5.609 million t, up by 2.4% from the corresponding period last year.

The company deepened adjustments of feedstock mix to reduce chemical feedstock cost, and pressed ahead optimisation of product slate, producing more market-oriented and high value-added products, strengthened the integration among production, sales, R&D and application, and intensified efforts on R&D, production and promotion of new products, with the ratio of performance compound reaching 62% and the differential ratio of synthetic fibre reaching 88.2%. In 1H17, total chemicals sales volume increased by 13.6% from 1H16 to 37.3 million t.

Operating revenues of the chemicals segment were RMB 208.4 billion, representing an increase of 39.7% year-on-year, which was mainly due to significant increasing chemical products prices and sale volume year on year. In 1H17, the operating expenses of the segment were RMB 196.3 billion, representing an increase of 40.7% year-on-year, which was mainly due to a significant increase of feedstock prices. The segment's operating profit was RMB 12.2 billion, representing an increase of 25.6% year on year.

Outlook

Looking into 2H17, Sinopec expects more reform measures to be announced by the Chinese government. The Chinese economy will maintain steady growth, driving demand for refined oil and petrochemical products as well as creating new growth opportunities in the petroleum and petrochemical industry. Along with the adjustments of China's energy structure, demand of natural gas as cleaner energy resources will maintain a robust growth rate. 2H17 international crude oil prices are expected to fluctuate at a low level.

In 2H17, in accordance with its objective to progress at a steady pace, Sinopec will focus on the following in the refining and chemicals segments.

• For refining, the focus will centre on structural reform on the supply side and accelerate the construction of four regional refining centres. Due to market demand and industrial trend, Sinpoec will optimise product mix and produce more gasoline, jet fuel, light oil and other high value-added products. It will complete GB V standard of regular diesel upgrading project, and accelerate upgrading progress of GB VI standard gasoline. It will also fine-tune crude oil procurement and resource allocation to reduce procurement cost, fully optimise operations and ensure safe and stable production, take full play of integrated advantages of production and marketing to further optimise processing scheduling. The company plans to process 118 million t of crude in 2H17.
• For chemicals, Sinopec will continue to adjust its feedstock structure. It will deepen the structural adjustments of facilities, and optimise production and operation based on contribution of the marginal contribution and gross margin so as to enhance efficiency and profitability. The company plans to produce 6.05 million t of ethylene in 2H17.

Read the full release here.

Read the article online at: https://www.hydrocarbonengineering.com/petrochemicals/29082017/sinopec-shares-1h17-refining-and-chemicals-segment-update/