China’s Largest Crude Oil Refiner Challenged by Weaker Economy

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(Bloomberg) — Sinopec’s profit inched higher in the first half, after an improved performance from upstream operations offset the impact of a slowing Chinese economy and hefty declines in the company’s main businesses of processing and selling fuels.

Net income in the first six months rose 1.7% on year to 35.7 billion yuan ($5 billion) on revenue of 1.58 trillion yuan, a 1.1% decline, according to earnings on Sunday from the company formally known as China Petroleum and Chemical Corp.. But there were bigger swings at the operating profit level that give a better sense of the challenges facing China’s largest oil refiner.

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While exploration and production rose 15% over the period, helped by stronger international crude prices and gains in output, there were drops of 38% in oil processing and 14% in marketing and distribution. Diesel, used in construction, was particularly weak. The state-owned company’s chemicals business remained in the red although losses narrowed.

Crude refining is one of China’s worst-performing industries, according to the statistics bureau, with accumulated losses in the first half of the year stretching to 16 billion yuan ($2.2 billion). Higher prices and rising transport costs related to conflict in the Red Sea have been a drag.

But much of the decline is long-term and linked to the energy transition as electric vehicles and gas-fueled trucks sap consumption of gasoline, which makes up about a quarter of the domestic oil market. Diesel demand is faltering because of China’s protracted property crisis, while capacity expansions amid the broader economic slowdown have created a glut of petrochemicals.

Sinopec’s vast refining operations leave it more heavily affected by the ups and downs of China’s industrial and retail consumption, unlike its more upstream-focused state rivals. PetroChina Co. releases earnings later Monday after a strong first quarter, while Cnooc Ltd.’s report is on Wednesday.

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Sinopec’s stock rose as much as 1.8% in Hong Kong after its earnings met estimates. The company was sanguine about the second-half outlook and expects further improvement in China’s economy and demand growth in both natural gas and chemicals, according to…