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Sinopec Discloses Huge Trading Loss, but Overall Strong 2018 Results

The losses, suffered at its commodities trading unit, Unipec, were one of China’s largest in nearly a decade stemming from derivatives trading.

CapitalWatch Staff
    Jan 25, 2019 2:08 PM  PT
Sinopec Discloses Huge Trading Loss, but Overall Strong 2018 Results

China Petroleum & Chemical Corp. (NYSE: SNP), the giant state-owned oil and gas company, has disclosed that its trading subsidiary lost a whopping 4.65 billion yuan ($687 million) from soured hedging attempts in the fourth quarter.

The losses, suffered at its commodities trading unit, Unipec, were one of China's largest in nearly a decade stemming from derivatives trading.

"Investigations have shown Unipec has applied some inappropriate trading strategies in hedging crude oil business," the company said in a filing to the Shanghai Stock Exchange today after the markets closed.

"Because of wrong calls on the oil price moves, [the company] incurred losses on the futures side of the hedging when oil prices fell," Sinopec said in the statement.

While the losses lowered earnings at the company, known as Sinopec, the company still managed to report strong year-end results.

Sinopec said in the filing that Unipec had also saved 6.4 billion yuan for its refineries in physical crude oil purchases when measured against the global oil benchmarks.

"Immediately after noticing abnormalities in the financial indicators. ...Sinopec terminated the transactions and carried out several measures to prevent further losses," the company said, adding it has stepped up internal compliances.

Sinopec reported 62.39 billion yuan ($9.2 billion) in net profit for 2018, up 22 percent from the previous year, data from the filling showed.

Total revenue also rose 22 percent in 2018 to reach 2.88 trillion yuan for the full year, Sinopec said.

In December, the company announced it had suspended two of its senior executives for reasons related to losses in crude oil trading, including Unipec President Chen Bo and an unnamed senior Communist Party representative of the company. The company did not detail the amount of the loss at that time.

In 2009, three Chinese state-run airlines reported book losses totaling 13.17 billion yuan on aviation fuel hedging contracts.

Sinopec closed at $80.85 per share, up more than 1 percent, or $1.05, in New York trading today.

(Reuters contributed to this article.)

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