China’s Largest Refiner Struggles with Declining Fuel Demand and Operational Challenges
Sinopec Corp., China’s largest oil refiner, reported a 16% decline in full-year profit for 2024, as the country’s slowing oil consumption and refining overcapacity weighed on the company’s performance. The net income fell to 49 billion yuan ($6.8 billion) from 58.3 billion yuan in 2023, missing analysts’ estimates of 56.4 billion yuan.
The profit slump highlights the demand-side pressures faced by China’s refining sector, with nationwide oil usage falling as the government pushes for more petrochemical production over road fuels. The boom in electric vehicles (EVs) is also reducing gasoline and diesel consumption, further denting Sinopec’s margins.
Key Takeaways from Sinopec’s 2024 Earnings Report
✅ 1. Profit Decline Misses Expectations:
- Net income fell to 49 billion yuan ($6.8 billion), a 16% drop year-over-year.
- Analysts had forecasted a profit of 56.4 billion yuan, making the results a significant miss.
✅ 2. Refining Profits Plunge by 67%:
- Sinopec’s refining business saw its operating profit drop by 67% to 6.71 billion yuan.
- Weak fuel demand and lower refining margins contributed to the decline.
✅ 3. Chemicals Division Posts Bigger Loss:
- Sinopec’s chemicals business reported an operating loss of 10 billion yuan, a 66% increase from the previous year.
- Weak global demand for petrochemicals and oversupply weighed on performance.
✅ 4. Falling Global Oil Prices:
- Average Brent crude oil prices declined by 3% in 2024, reducing raw material costs for refiners.
- However, the contraction in China’s property sector dampened fuel demand, limiting the benefits.
China’s Weak Oil Demand Puts Pressure on Sinopec
China’s oil consumption is showing signs of stagnation, with demand for gasoline and diesel falling due to the rise of EVs and government policies promoting petrochemical production over fuel refining.
📉 1. Declining Fuel Consumption:
- The International Energy Agency (IEA) warned that China’s road-fuel demand is expected to keep falling in 2025.
- The government’s push for energy efficiency and EV adoption is reducing gasoline and diesel consumption.
- Diesel demand, which typically mirrors industrial activity, has weakened due to the sluggish property sector.
🚗 2. Electric Vehicle Boom Reduces Fuel Demand:
- China’s EV market is expanding rapidly, reducing gasoline consumption.
- With over 8 million EVs sold in 2024, the shift to electric mobility is accelerating the decline in fuel demand.
- Sinopec is struggling to adapt to the shift, with fuel refining margins shrinking.
💡 3. Policy-Driven Refining Shift:
- The Chinese government is encouraging refiners to produce more petrochemicals rather than road fuels.
- This policy shift is aimed at diversifying export revenues and reducing China’s reliance on fuel imports.
- However, it has pressured refining margins, as domestic fuel demand weakens.
Refining Business Sees Sharp Profit Decline
Sinopec’s refining segment, which was once a profit driver, is now facing shrinking margins and excess capacity.
📊 1. Profit Down 67%:
- The refining segment’s operating profit fell by 67% year-over-year to 6.71 billion yuan.
- Weak refining margins, driven by lower fuel prices and falling domestic demand, hit profitability.
🛢️ 2. Overcapacity Challenges:
- China’s refining sector is struggling with overcapacity, which is eroding margins.
- Smaller, less efficient refiners are facing shutdowns or consolidation as larger firms dominate the market.
- The government’s plan to phase out smaller, unprofitable refiners is expected to continue in 2025.
🔍 3. Rising Input Costs:
- Although global oil prices declined by 3% in 2024, the benefits were offset by rising input costs and lower domestic fuel prices.
- Sinopec faced narrowing crack spreads, reducing its profitability.
Chemical Business Struggles with Oversupply
Sinopec’s chemical division, which contributes a significant portion of its revenue, reported a widening loss.
📉 1. Loss Widens by 66%:
- The chemical segment’s operating loss expanded by 66% year-over-year to 10 billion yuan.
- Weaker global petrochemical demand and overcapacity pressured margins.
⚙️ 2. Lower Demand for Petrochemicals:
- The slowdown in global manufacturing weighed on demand for plastics, resins, and chemicals.
- Chemical prices remained under pressure, limiting Sinopec’s pricing power.
🔍 3. Oversupply Woes:
- China’s petrochemical industry is facing oversupply challenges, with weaker export demand.
- This is driving price competition and reducing profitability.
Impact of Global Oil Prices and Trade War
Sinopec’s performance was also impacted by geopolitical factors and global oil price movements.
📊 1. Declining Global Oil Prices:
- Brent crude prices declined by 3% in 2024, reducing input costs for refiners.
- However, weaker domestic demand and shrinking refining margins offset the cost advantage.
🔍 2. Trade War Pressures:
- The U.S.-China trade tensions weighed on China’s industrial output, reducing fuel consumption.
- Export slowdowns reduced China’s oil demand growth, adding pressure on Sinopec’s margins.
📉 3. Property Sector Slowdown:
- The slumping property sector in China further dampened diesel demand.
- Reduced industrial activity and construction projects led to lower fuel consumption, hitting refiners like Sinopec.
Outlook for Sinopec and China’s Refining Sector
Sinopec’s 2025 outlook remains clouded by sluggish fuel demand, overcapacity, and global uncertainties.
🔍 1. Ongoing Demand Challenges:
- The IEA projects that China’s oil demand growth will continue slowing in 2025.
- Rising EV adoption and weaker industrial activity will reduce gasoline and diesel consumption.
📊 2. Pressure on Refining Margins:
- Refining margins are expected to remain under pressure due to overcapacity and weaker demand.
- Sinopec may focus more on petrochemical production to offset the decline in fuel margins.
💡 3. Potential for Consolidation:
- China’s government is expected to shut down smaller refiners, consolidating the market.
- This could benefit larger players like Sinopec, boosting their market share.
🚀 4. Cnooc and PetroChina Earnings:
- Sinopec’s peers Cnooc and PetroChina are scheduled to report their earnings on March 27 and March 30, respectively.
- Investors will watch for similar margin pressures and signs of market stabilization.
Conclusion: Sinopec Faces Mounting Pressure Amid Weak Oil Demand
Sinopec’s 16% profit decline in 2024 reflects the growing challenges facing China’s refining sector. With falling fuel consumption, rising EV adoption, and global trade uncertainties, the company’s margins remain under pressure.
The chemical division’s widening loss and shrinking refining profits highlight the struggles in China’s energy market, with overcapacity and declining demand weighing heavily on profitability.
As China’s refining sector consolidates, Sinopec’s long-term strategy will likely focus on petrochemicals and energy security, while smaller refiners face closure.
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