China Petroleum & Chemical Corp, Asia's biggest oil refiner, said crude oil processing grew at the slowest pace in three years in 2005 as the cost of its raw material climbed.

 

China Petroleum, or Sinopec, increased refining of oil 5.3 percent to 139.9 million metric tons in 2005, the Beijing-based company said on its website yesterday. Processing rose 14 percent last year and gained 10 percent in 2003.

 

China's government caps prices of gasoline and diesel, limiting Sinopec's ability to pass on higher costs to customers as crude oil prices surged. Sinopec, which supplies 77 percent of the fuel sold in the country, received 9.42 billion yuan (US$1.2 billion) in government payments last year to cover its raw material costs.

 

"Their profitability last year would have taken a hit, if not for the government subsidies," said Belle Liang, head of China research at Core Pacific-Yamaichi International in Hong Kong. "Their refining business has been hurt by high oil prices."

 

The government payment will contribute to 2005 earnings, Sinopec told the Shanghai Stock Exchange in December. The subsidy is 14 percent of 2004 operating income at Sinopec.

 

Sinopec shares in Hong Kong rose for the first day in three, gaining as much as 12.5 Hong Kong cents, or 3.1 percent, to HK$4.225. The stock has risen 38 percent in the past six months, more than the 5.9 percent increase in the benchmark Hang Seng index.

 

Sinopec's domestic sales of oil products rose 10.5 percent to 104.6 million tons last year, the statement said. Gasoline output fell 2.5 percent to 22.9 million tons and diesel increased 7.9 percent to 54.9 million tons.

 

Production of ethylene, a raw material used to make plastics, rose 31 percent to 5.3 million tons.

 

Sinopec's crude oil production increased 1.7 percent to 278.8 million barrels and natural gas output rose 7.2 percent to 221.9 billion cubic feet, the company said.

 

The government controls fuel prices, allowing fluctuations of no more than 8 percent from the set level. An increase in gasoline and diesel prices would boost manufacturing costs and inflation.

 

The government increased gasoline and diesel prices three times last year, by a total of 16 percent, compared with oil's 40 percent surge in New York. Price controls may have been to blame for fuel shortages that affected southern China last summer, the International Energy Agency said in August.

 

(China Daily January 19, 2006)