The company, known as Sinopec, said in a statement that its profits slumped to 542 million yuan (US$65.5 million) during this period, compared to 3.94 billion yuan (US$476.4 million) in profits a year earlier. Sales also fell 17 per cent to 63 billion yuan (US$7.6 billion).

"Profit is worse than expected, although the market understands it was a tough period for oil companies," said an analyst from a Beijing-based investment bank.

Chinese oil companies saw first-quarter profits slide 59 per cent on lower oil prices, the State Economic Trade Commission said last week.

Sinopec shares lost 4.5 per cent to HK$1.26 (16.2 US cents) on Monday, marking a four-day drop.

The profit loss was mainly prompted by an overall decrease in prices for its major products, including crude oil, refined oil and chemical products, especially in January and February, the company said.

Prices of refined oil products like gasoline, diesel and kerosene, which account for 59 per cent of the total income of principal operations, dropped by over 20 per cent.

The sales price for crude oil dropped by 27 per cent to 1,010 yuan (US$122.1) a ton in the three months.

Analysts said the severe competition between Sinopec and PetroChina, the largest domestic oil company, in the oversupplied refined oil market further squeezed profits.

Price dumping between the two in January and February was the most furious of recent years, analysts said.

Sinopec's performance has recovered since March as international crude oil has picked up, and the two giants have agreed to join hands to control output to push up prices for refined oil products, they said.

The worst period is over, experts said, but they question how long the recovery could last.

The key is whether the two companies can continue to keep the market tight. If either one is overly-optimistic in raising production, the market will be undermined.

Other risks include the possible debut of a fuel tax in the summer, which would greatly impact the market.

(China Daily May 6, 2002)