Sales of petrochemical and oil products at higher prices helped China Petroleum & Chemical Corp's (Sinopec) net profits surge in the first half of this year.

This means that, based on mainland accounting standards, Asia's largest refiner's net profits grew by more than half.

Strong international prices and hefty domestic demand mean that this growth is in line with market expectations, as most domestic oil firms' profits have increased.

Latest figures from China Petroleum and Chemical Association show that the petroleum and chemical sectors' profits increased by 32.3 per cent on year to 101.3 billion yuan (US$12.2 billion) in the first five months.

But analysts expect Sinopec's profit growth to slow down as the refinery and petrochemical sector's profit margin may shrink if the oil prices remain high.

In another industry development yesterday, PetroChina, the nation's largest oil and gas producer, announced that its total oil and gas output rose 2.7 per cent year-on-year to 456.7 million barrels of oil equivalent in the first half of this year.

PetroChina's oil output inched up 0.5 per cent to 388.3 million barrels in the first six months, while gas production jumped 17.4 per cent to 410.3 billion cubic feet.

PetroChina sold the oil at an average US$29.76 per barrel in the first half, representing a 5.98 per cent year-on-year increase.

PetroChina's production is better than expected, as most analysts had been anticipating PetroChina's oil production would fall as its largest oilfield Daqing is cutting output after decades of exploitation.

"PetroChina's oil production has held up," said Liu Gu, an oil analyst at Guotai Jun'an Securities (Hong Kong) Ltd. "Production growth in new areas like the Xinjiang Uygur Autonomous Region has offset the output drop in old fields."

Both Sinopec and PetroChina shares rose on the Hong Kong stock market yesterday. Sinopec shares climbed 1.77 per cent yesterday to HK$2.88 (36.9 US cents), while PetroChina's inched up 0.69 per cent to HK$3.68 (47.2 US cents).

The China Securities Regulatory Commission requires listed companies to post special announcement to alert investors on its possible sharp profit fluctuations.

Sinopec, which listed on the Shanghai, Hong Kong, New York and London stock markets, will publish its interim results on August 30.

Analysts said Sinopec is mainly benefiting from strong sales of petrochemical and oil products, contributing roughly 70 per cent to its earnings.

The rise in international oil prices during this period has also lifted the oil and gas production sectors' profits.

Analysts said Sinopec's profit growth is somewhat inflated as it is based on last April and May's low figures during the SARS (severe acute respiratory syndrome) outbreak, which hit oil consumption badly.

Sinopec's full-year profits are likely to slow down from the remarkable growth registered in the first half of this year.

"Oil prices will be the key factor affecting the performance of Sinopec and PetroChina in the second half," said Liu from Guotai Jun'an. "Basically, Sinopec's profit in the second half may slow down as the international oil price rise may tighten the margins of the refinery and petrochemical business."

Liu anticipated Sinopec's full-year profit will increase by 31 per cent to 28.3 billion yuan (US$3.4 billion), based on international accounting standards.

PetroChina is expected to increase by 9.3 per cent on year to 76 billion yuan (US$9.2 billion), Liu said.

(China Daily July 16, 2004)