Sinopec reported a net profit of RMB 39 billion in the first three quarters, up 30% year-on-year, while crude oil production declined by 0.1% year-on-year. How should we interpret these figures?

The company itself offers a straightforward explanation: improved refining and petrochemical product margins, increased output of high-value-added products such as jet fuel, and inventory gains driven by rising crude oil prices. The phrase 'inventory gains' is key to understanding this earnings report. Sinopec maintains large inventories of crude oil and semi-finished products—purchased previously at lower prices. This year, Middle East tensions pushed oil prices higher: Brent crude’s average price in the first three quarters rose 32.7% year-on-year, and Sinopec’s realized crude oil price rose 23.4%. As oil prices climbed, the book value of those 'cheaper' inventory items rose accordingly; when sold, the resulting margin widened significantly. It’s akin to having bought a batch of goods cheaply last year—then selling them this year at today’s higher market price, earning not only processing fees but also capital appreciation on the inventory itself. Added to this were improved refining margins and stronger sales of higher-margin products like jet fuel, enabling the refining segment to achieve RMB 30.1 billion in pre-tax profit for the first three quarters—the largest contributor to overall profits. But trouble lies hidden in other figures. If we look only at refining and exploration, Sinopec had a comfortable first nine months. Yet two other segments dragged performance down. The chemical segment remains unprofitable: it posted a pre-tax loss of RMB 1.69 billion in the first three quarters. Ethylene output fell 19% year-on-year; synthetic resin output dropped nearly 20%. Production is already contracting—but losses persist. This indicates the problem isn’t overcapacity or weak sales volume; rather, even when products are sold, they yield little or no gross profit—reflecting extremely weak downstream demand and severely compressed margins across chemical products. Retail fuel sales also struggled. Domestic refined product sales volume declined 10.7% year-on-year; retail volume fell 8.7%. The reasons are straightforward: when fuel prices rise, drivers instinctively reduce acceleration; and as electric vehicles proliferate, gasoline- and diesel-powered demand is being gradually displaced.

How will Sinopec Group develop over the next five years?

Software long used across various development units lacks standardization: popular modules must be formally ‘reported and shared’, indicating the absence of a unified internal software marketplace. When Jingmen Petrochemical launched its materials management mobile app, it had to manually map data flows across 15 existing systems before building custom interfaces. Hainan Petroleum, relying on its ‘Innovation Workshops’, independently developed safety inspection, natural gas customer management, and LPG business management systems—typical examples of grassroots-level self-development projects that are numerous, functionally redundant, and maintained in isolation. 5. Recommendations · Eliminate repetitive paper-based ledgers: routinely collected data—e.g., alarm system logs—should be automatically captured and directly generated as digital records within the system. · Use AI to generate inspection documentation: frontline staff should only verify content—not manually transcribe or copy. · Enable large models to invoke small, task-specific models: empower frontline teams to build their own applications, instead of each unit developing separate, siloed systems. Ten. Jet Fuel: A Floor—but Falling Short of Expectations In 2025, Sinopec produced 33.71 million tonnes of jet fuel, accounting for 22.6% of its total refined product output—a 7.3% increase year-on-year. Yet jet fuel represents only about 10% of domestic refined product consumption; its growth cannot offset the decline in gasoline and diesel demand. Two major constraints: · Aging population: China entered negative population growth in 2022; over the next decade, more than 20 million people will retire annually. In the first half of 2026, domestic civil aviation carried 372 million passengers—a mere 0.5% increase year-on-year; average daily aircraft utilization stood at 7.8 hours, 0.4 hours below the 2019 level. · HSR diversion: Airbus forecasts (September 2026) that high-speed rail has already diverted approximately 10% of domestic air passenger traffic—and will divert an additional ~10% over the next 20 years. For air routes of 600–700 km, passenger growth has slowed to just 1%–3%. Following the launch of the Xi’an–Shiyan HSR line in June 2026, the airline share of the Wuhan–Xi’an route plummeted from 15.8% to 7.2% in its first month; fares dropped 20%, and flight frequency fell 47.4%. Sinopec’s own assessment: short-haul domestic routes face intensifying HSR competition and sustained growth deceleration; international routes and air cargo represent the primary growth engines. Eleven. EV Charging Business: Accelerating Socialized Operations ‘Sinopec Easy Power’: Jiangsu Petroleum has accumulated over 10 billion kWh of charging volume and deployed more than 10,000 charging terminals. Market-driven integration: Hubei Petroleum has connected with 18 external enterprises, integrating over 8,000 charging guns. Service fees have fallen below RMB 0.1 per kWh—making profitability solely from service fees increasingly untenable. Operating model: Sinopec sets technical access standards and settlement rules; third parties handle equipment operation & maintenance, routine inspections, and customer service; Sinopec serves as the ‘mother port’—providing centralized battery recharging, standby capacity, maintenance, and participation in virtual power plant dispatching. Conclusion: Why the 2035 Target Is Challenging Dimension Reality Impact on Target Revenue Projected RMB 1.8–2.2 trillion in 2035—down 20%–35% vs. 2025 Significant scale contraction Profitability Upstream and refining remain profitable; chemicals still incur losses Lack of new profit drivers Workforce Upstream workforce reduced by 53%; refining & marketing reductions lag Uneven improvement in labor productivity Assets Refining & chemical fixed assets stand at RMB 330.3 billion, with annual depreciation of RMB 127.2 billion (Sinopec) Persistent depreciation pressure Gas stations ~3,000–6,000 remote stations expected to exit operations—4,000–5,000 projected closures Slow ROI on transformation investments Mature oilfields Water cut exceeds 95%; production costs exceed USD 50/barrel; well abandonment costs reach RMB billions Eroding upstream profitability New businesses Broad portfolio deployment, yet unclear monetization models Risk of diverting capital from core operations

Sinopec's chemicals output drops, losses narrow on cost cuts

just now

Sinopec's chemicals sales dropped 4.6% to 283.5 billion RMB in the first nine months of 2026, though operating losses narrowed to 2.1 billion RMB through cost cuts. Ethylene and synthetic resin outputs fell significantly amid weak demand.

chemweek

2026-04-14

Sinopec buys Russian oil to replace Middle East supply after US waiver, sources say

2026-04-30

Sinopec reports lower chemicals sales, wider loss amid mixed output trends

2026-05-24

Vessels carrying Middle East oil, LNG exit Hormuz, head for Pakistan, China

2026-09-08

China oil demand to fall 8.9% in 2026, Sinopec research says

2026-09-09

China Oil Demand to Shrink This Year, Sinopec Research Arm Says