Sinopec Refineries Say Losing Money Despite Internal Incentives

Refineries run by China Petroleum and Chemical Corp (Sinopec) are still operating at a loss even though the top Chinese oil company by sales raised ex-factory fuel prices and extended other incentives this year, refinery officials said on Friday.

Sinopec increased the ex-factory prices at which its refineries sell to sales units by 100 yuan to 8,280 yuan ($1,300) per tonne of 90-ron gasoline and regular diesel by 50 yuan to 7,380 yuan per tonne from Jan. 1, according to the officials.

It also extended a markup of 440 yuan on the ex-factory price for each tonne of gasoline beyond an output quota to 8,720 yuan, and diesel by 710 yuan to 8,090 yuan per tonne in January to encourage fuel production.

"The increases were not enough to relieve losses," said an official at a south China refinery.

"Additional production above quotas assigned by headquarters could not be very large and the incentive proved to be of little help to us," said another official in a east China plant.

China's National Development and Reform Commission tightly controls the ceiling on retail fuel prices and gives oil companies some flexibility to determine ex-factory prices -- the settlement price between refineries and fuel sales units.

Prices for supplies to the military and some other bulk users are still strictly regulated.

While the commission said China's refining sector lost 1.17 billion yuan in the first three quarters of last year, the nation's two leading refiners, Sinopec and PetroChina Co Ltd

reported a combined loss of 64.6 billion yuan on oil refining in the same period, leading to some uncertainty in the market.

Some analysts said government data treated refineries and fuel sales units as a whole, while figures offered by oil companies excluded results at sales units that enjoy fixed profit margins.

With controlling inflation a top priority, the government raised fuel price ceilings twice and lowered them once last year, moves analysts said were insufficient to erase losses at refiners.

With increases in the crude oil prices that China's gasoline and diesel prices are based on topping a trigger point of 4 percent recently and inflation trending down, the government may yet consider raising fuel prices after its last hike in April.