Sinopec Group Needs to Improve            

Among the latest Fortune 500 list, Sinopec Group, by revenue of US$207.814 billion in 2008, lifted its position to No.9 from No.16 in 2008.

Gaps still exist     

In terms of annual revenue, Sinopec Group now can compete with those global oil tycoons, such as Royal Dutch Shell, ExxonMobil, BP etc, but as regards profit margin ratio, the gaps between Sinopec Group and those oil tycoons were still remarkable.
   In 2008, according to the Fortune data the net profit margins for ExxonMobil, TOTAL and Royal Dutch Shell were 10.2%, 6.6% and 5.76% respectively, while for Sinopec Group was only 0.94%.
   A staff of Sinopec Group said that the 2008 profit drop was mainly caused by the national control over the prices of oil products. It is true that the loss of refining business in 2008 amounted to nearly hundred billion RMB. Compared with the net profits of RMB45.1 billion in 2006 and RMB47.9 billion in 2007, its net profit in 2008 was RMB13.4 billion only.
   Staff amount is an important index for production efficiency. Taking the production value per workforce with petroleum enterprises into consideration, Sinopec Group also cannot be placed on a par with transnational oil tycoons.
    The workforce in Sinopec Group has long been enormous. Currently it has a total registered staff of 660 thousand, and hired 404 thousand of temporary worker. The current staff of BP is 92 000, and the staff of both Royal Dutch Shell and Chevron Corporation is about 100 000, and of ExxonMobil, who ranks the 2nd in Fortune 500 with the revenue of US$442.9 billion, is only 80 000.
    Another shortcoming of Sinopec Group is its inefficient crude oil production capacity. In 2008, it produced 41.80 million tons of crude oil and processed 173 million tons. As a result, around over 70% of crude oil it processed had to be purchased from overseas, and the ratio of crude oil production to processing quantity was approximately 1:4.
    The prospective improvement of crude oil production will enhance Sinopec Group's competitiveness. "Currently, Sinopec Group's oversea interest production is nearly 10 million tons per year, which can be shipped to China for refining in order to cut production cost, or directly sold overseas to offset cost," that staff said. He believed that the strengthening of crude oil exploration and resource acquisition both at home and abroad is the only way to guarantee the achievement improvement of the Group. However, the large oil fields in the world are all controlled by a few transnational oil corporations, or oil enterprises in Middle East, South America and Russia, and the increase of crude oil production for Sinopec Group will be bristling with difficulties ahead.
   Undoubtedly, Sinopec Group also boasts its superiorities, i.e. the refining and petrochemical business. And now, its crude oil primary processing capacity of 206 million tons per year ranks the third worldwide, and its ethylene production capacity of 6.15 million t/a also ranks the world top 5.
    More importantly, Sinopec Group's complexity and flexibility of refining units dominated other global refineries. For example, Sinopec Group can refine not only inferior acidic crude oil, but also superior sweet crude oil.


Targeting the markets     

However, these superiorities are far from enough. Unstable oil price and the economic crisis compel Sinopec Group to consider adjusting development strategies. It has chosen to carry forward a new market-based strategy - client demand-oriented strategy, starting its transformation from "selling products" to "selling services".
   Given the global economic crisis, China's auto industry still keeps growing, and China is gradually becoming one of the world's largest automobile consumption markets. Auto parts made of petrochemical products accounts for 1/5 of the total automobile in weight, which makes the petrochemical and auto industries share common intersections in terms of lubricant oil, fuels and rubber products, etc as well as technological development, energy saving, environment protection and resource guarantee, etc.
   As a result, for better development, Sinopec Group focuses its emphasis on auto market. In June 2009, it listed arm Sinopec Corp. launched the Sinopec Automobile Industry Technology Cooperation Center in Beijing, thus integrating Sinopec Corp.'s dispersed automobile service forces. "Sinopec Corp. used to possess tens of departments that directly or indirectly offered services to auto industry, involving hundred of products and services. The lack of a unified communication platform between the two sides brought lots of inconvenience," said Zhang Chunhui, Director of the Center.
    And this is just a prelude to the strategic transformation of Sinopec Group. "The transformation from manufacturing to providing service is an important orientation of the prospective development. Sinopec Corp. will pursue a co-winning mode of a close cooperation with downstream industries, and promote these valuable experiences to even more downstream industries, thus radically enhancing the competitiveness of Sinopec Group," said Zhang Jianhua, Senior Vice President of Sinopec Corp.

Notes: The main business of Sinopec Group includes exploration and comprehensive processing of petroleum and natural gas, refining, manufacturing and sales of petrochemical products, as well as exploration, design and construction of petroleum and petrochemical engineering, etc. Sinopec Group holds a 75.84% share in Sinopec Corp. (SH: 600028).