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China's Sinopec Posts 36% Jump in Profit

Top Asian oil refiner Sinopec posted a 36% surge in quarterly earnings as lower oil prices helped its refining arm turn around, but the firm warned that the now loftier cost of crude
may pressure its second half.

Overall, Sinopec's first-half net profit leapt nearly two-thirds -- its best six-month performance since 2003 with oil prices nearly 4% lower, on average.

Sinopec, which vies with PetroChina and CNOOC to supply the world's second largest oil market, posted a second-quarter net profit of 16.79 billion yuan ($2.21 billion), based on Reuters' calculations off previously reported data.

That compared with a marginally restated 12.32 billion yuan and beat a forecast for 14.7 billion yuan, according to four analysts polled by Reuters.

Crude prices hit a 19-month nadir below $50 a barrel in January before recovering to a 10-month high above $70 a barrel at the end of June. Depressed prices translate into a windfall or refiners.

But analysts say the rebound in crude, which peaked at a record $78.77 at the beginning of this month, squeezed Sinopec's refining margins back into negative territory again in the third quarter, after moving into the black in the fourth quarter of last year.

The state-run firm has to contend with government caps on product prices and a national obligation to supply the fast-growing domestic market with fuel. Executives have signaled that Beijing is unlikely to raise retail fuel prices in the near term.

A government decree this month urged refineries to boost output and warned against unauthorized wholesale price rises, showing concern about fuel shortages and inflation.

For the first half, the firm said net profit came to 36.2 billion yuan under international financial reporting standards, versus a revised 21.9 billion yuan a year earlier.

"Looking into the second half of 2007, China's economy is expected to continue to grow rapidly, which will provide good external condition for expansion," Sinopec said late on Sunday.

"But unfavorable factors ... remain outstanding, in particular the increasing pressure for guarantee of domestic market supply under circumstances where oil prices remain high."

Room At The Top

Sinopec's shares rose a fifth from January to June, outpacing PetroChina's 4.5% rise and a 16% gain in the index of Chinese stocks listed in Hong Kong.

It trades at 10.2 times forecast earnings, in line with BP's ten and Exxon Mobil's twelve.

Sinopec put the decline in average Brent crude oil prices at 3.7% in the first half, to $63.26 a barrel. It also credited 1.484 billion yuan in cost savings for propping up its bottom line, split evenly among its divisions.

Investors are looking now for strategy changes under new chairman Su Shulin. Predecessor Chen Tonghai stepped down two years early in June amid widespread reports of mismanagement.

The company repeated that he resigned for personal reasons.

The firm said on Sunday it aims to produce 20.74 million tons of crude oil, 4.05 billion cubic meters of natural gas, and intends to process 78.25 million tons of crude oil in the second half.

It hopes to sell 59.08 million tons of refined oil products domestically, and produce 3.27 million tons of ethylene.