Sinopec to Gain Subsidies for Refining Business     

It is reported that Sinopec Petrochemical Corporation (Sinopec Group), the parent company of Sinopec Corp. (SH: 600028), has acquired the subsidies approval from the government for its refining business. The specific amount of subsidies is not disclosed.
   Sinopec Corp. has purchased almost all refining assets from its parent company. Sinopec Group got subsidies from the government in both 2005 and 2006. As major refining business of Sinopec Group is involved in the listed company, the amount of subsidies the listed company got was much more than other branches in Sinopec Group.
   Shanghai Petrochemical Co., Ltd. (SH: 600688) will get a portion of subsidies from Sinopec Corp. by its oil processing capacity.
   Executives from Sinopec Group and Sinopec Corp. have made no response so far to the above information.
   The price of crude oil in the international market is surging since the second half of 2007, but the price of oil products in China is still controlled by the government and is not linked to the international market. The refining business in Sinopec Corp. suffered heavy loss in the third quarter of 2007.
   The National Development and Reform Commission increased the price of oil products in the fourth quarter of 2007, but due to the sustained high price of crude oil the refining business in Sinopec Corp. continues to suffer loss. Based on a crude oil price of US$80 per barrel, refining enterprises will suffer a loss of around RMB1 000 for producing one ton of oil products sold.
   According to the non-audited production and operation data for 2007 published by Sinopec Corp., the company processed nearly 156 million tons of crude oil in 2007, up 6.33% year-on-year. The output of gasoline, diesel, kerosene and chemical light oil was 24.69 million tons, 60.08 million tons, 8.32 million tons and 23.47 million tons respectively, up 7.35%, 3.84%, 31.02% and 3.21% respectively.
   Sinopec Corp. sold 119 million tons of oil products in the domestic market in 2007, up 6.9%. The retail sale amount was 76.62 million tons, up 6.18%, both higher than the targets set by the company at the beginning of 2007.
   Besides, the supply of oil products in the south of China was deficient at the end of 2007. To ease the supply shortage, Sinopec Group and another oil giant CNPC imported great quantities of oil products. Sinopec Group imported 60 000 tons of gasoline in September, 90 000 tons of diesel in October, 287 000 tons of diesel in November and 423 000 tons of diesel in December and also basically stopped the export of gasoline and diesel in the second half of 2007. Due to the irrational relationship between the crude oil price in the international market and the oil product price in the domestic market, Sinopec Group suffered huge losses.
   "Refineries are basically making full-capacity operation," said an executive from Sinopec Corp. "Sinopec Corp. has done a lot in ensuring the supply of oil products in the domestic market."