Weak demand for refined oil, Sinopec’s revenue and net profit to decline in 2024.

Due to the peak demand for finished oil in China and weak consumption, in 2024, both revenue and net profit of Sinopec (China Petroleum & Chemical Corporation) declined, with multiple financial indicators deteriorating, reflecting a weakening profit capability in the company’s core business.

On Monday, March 24th, Sinopec released its 2024 performance report and held an earnings briefing. The report showed that in 2024, Sinopec’s operating income decreased by 4.3% year-on-year to 3.07 trillion yuan, while the net profit attributable to the parent company also dropped by 16.8% to 50.313 billion yuan.

At the meeting, the Chief Financial Officer Shou Donghua stated, “Affected by the decrease in domestic gasoline and diesel operating volumes and price differentials, the pre-tax profit of the finished oil sales segment for the whole year dropped by 23.9% year-on-year to 22.3 billion yuan.”

Sinopec divides its operations into four divisions: Exploration and Development, Refining, Marketing and Distribution, and Chemicals, as well as Headquarters and Others.

Both the Refining and Marketing and Distribution divisions saw declines in revenue and profit in 2024. Their operating income decreased by 3.2% and 5.7% year-on-year respectively, to 1.48 trillion yuan and 1.71 trillion yuan, with operating profit dropping significantly by 67.4% and 28.1% to 6.714 billion yuan and 18.646 billion yuan.

The loss in the Chemicals division further widened in 2024. The operating loss reached 9.997 billion yuan, nearly 4 billion yuan more than in 2023. Analysis by the mainland media outlet “Caijing” pointed out that despite the increase in sales volume and prices of chemical products, the continued release of new domestic production capacity, a significant narrowing of chemical gross profit, as well as the rising prices of some chemical raw materials, led to a year-on-year increase in related operating expenses by 2.4% to 533.859 billion yuan.

Other financial indicators deteriorated as well. The basic earnings per share were 0.415 yuan, a decrease of 0.09 yuan from 0.505 yuan in 2023, representing a 17.8% decrease. This is in line with the downward trend in net profit, reflecting the weakened profit capability of the company.

After deducting non-recurring gains and losses, the basic earnings per share were 0.397 yuan, down 0.11 yuan from 0.507 yuan in 2023, a decrease of 21.7%. This further indicates the weakening profit support from the core business of the company, resulting in a decrease in earnings per share received by shareholders from core business.

In November 2024, the “China Petroleum News” reported that the cumulative replacement volume of new energy vehicles and natural gas heavy trucks for gasoline and diesel consumption exceeded 50 million tons, a 20 million ton increase from the same period in 2023, with a replacement rate reaching around 15%. By 2030 and 2035, gasoline and diesel consumption is expected to decline by around 25% and 50% respectively compared to 2023, with only aviation kerosene becoming the only growth point during this period.

From a short-term perspective, industries related to diesel consumption such as goods transport, real estate, and traditional infrastructure are facing low business activity. From a medium-term perspective, the LNG (liquefied natural gas) heavy truck market is in a phase of rapid growth. Looking at long-term factors, the slowing growth rate of the secondary industry is reducing diesel consumption intensity.

According to Reuters, even though the Chinese economy is beginning to regain momentum under ongoing stimulus measures and has managed to avoid any damage caused by the tariffs expected to be imposed by the U.S. Trump administration, the situation may still remain challenging.