China refinery losses widen to $850M

"They are facing big difficulties," said Feng Shiliang, deputy secretary-general of the China Petroleum and Chemical Industry Association, quoted by the China Daily newspaper.

China Petroleum & Chemical Corp., or Sinopec, Asia's biggest refiner by volume, warned last week that its first-half profits would fall by more than half. China's biggest oil company by revenue, China National Petroleum Corp., has given no profit forecast but has said earlier that its results were hurt by price controls.

The 5.7 billion yuan losses come just weeks before both companies report first-half results.

Beijing has kept state-set retail gasoline and diesel prices low to shield the poor, but oil refiners must still pay international market prices for crude and complain they are suffering heavy losses. Even though the government raised prices in June to curb surging growth in consumption, analysts say refiners still lose money on every barrel of crude they process.

CNPC and Sinopec have received subsidies from the government, but analysts say those cover only part of the gap between the cost to buy and refine crude and the prices earned by refined products on the domestic market. The companies have been forced to make up the refining losses out of the rising profits from their production units.

Total revenues for Chinese petroleum and petrochemical producers were 3 trillion yuan ($435 billion) in the first half, up 30.2 percent from the year-earlier period, the China Daily said.

CNPC General Manager Jiang Jiemin said the company will cut costs by reducing spending on office expenses, travel and entertainment 10 percent this year and putting a moratorium on new construction, the report said.