The net profit of Sinopec Shanghai Petrochemical Co Ltd, an arm of top Asian oil refiner Sinopec Corp, dropped by 53.4 per cent to 1.85 billion yuan by the end of 2005, the company said yesterday.

The company's net profit plunged especially in the second-half of 2005, down by 96 per cent to 87 million yuan compared with a net profit of 2.45 billion yuan in the last year.

Despite the huge loss in its yearly earnings, the company's turnover for 2005 amounted to 45.96 billion yuan, an increase of 16.63 per cent from one year earlier.

Its total production output also for the first time reached from 8 million tons to 8.65 million tons, with its processed crude oil reaching 9.49 million tons.

Rong Guangdao, chairman of the Shanghai-based refiner and chemicals processor, said that the distorted correlation between a historically high price for international crude oil and a low domestic price for the company's petroleum products led to the big loss in its net profit.

Andes Cheng, associate director of South China Research, agreed with Rong's explanation, adding that the central government's policy had a strong influence on the company's balance sheet.

Beijing still imposes a price cap on diesel, petroleum and other petroleum products.

As such, the company had to suffer a considerable refining loss of 1.5 billion yuan in 2005 as crude oil price surged by 40 per cent, even after Beijing gave the company a subsidy of 630 million yuan.

Last weekend China's National Development and Reform Commission, the mainland's top economic planner, raised retail prices for diesel and gasoline to 200 yuan per ton and 300 yuan per ton respectively, the first move of its kind by the government in eight months.

Rong thought that it was a good start but added that the company would not be able to break even until the increase was up from 500 to 700 yuan to about 1,000 yuan per ton.

He hoped that petroleum product prices could be finally linked to international oil prices, while admitting that government must make special efforts to reach the goal.

The company, the largest ethylene producer on the mainland, hoped to see its ethylene production capacity reach about 1.4 million tons a year if it got the government's approval to build a new ethylene production base, Rong told reporters.

The company production capacity for ethylene surged to about 0.96 million tons in 2005, thanks to its investment on Shanghai Secco ethylene project.

Asked about the company's privatization plan, Chairman Rong said there was no plan for such a move.

(For more biz stories, please visit Industry Updates)