J.P. Morgan: Sinopec’s third-quarter results improved on exports and lower costs, but freight pressure returns in the fourth quarter

Why might the third-quarter improvement reverse in the fourth quarter?

Management attributed most of the improvement in third-quarter refining earnings to a quarter-on-quarter decline of US$10 per barrel in logistics costs and crude oil premiums, saying the change increased earnings by 20.7 billion yuan quarter on quarter.
The company expects the related costs to rise by US$10–20 per barrel quarter on quarter in the fourth quarter, with the combined premium on official crude oil selling prices and logistics costs reaching US$15–25 per barrel; the cost was US$15 per barrel in the second quarter. JPMorgan believes fourth-quarter losses could exceed those in the second quarter.
By the bank’s calculation, all else being equal, the cost increase would theoretically reduce fourth-quarter earnings by 20 billion–40 billion yuan quarter on quarter.

The government has issued the fourth batch of refined oil product export quotas. Assuming Sinopec uses its full quota, JPMorgan estimates exports will contribute 7.6 billion yuan in earnings in the fourth quarter; the bank estimates export earnings in the first three quarters of 2026 at 16.5 billion yuan, more than half of refining operating profit.
Exports remain tightly controlled, and China continues to rely on drawing down strategic and commercial oil reserves to maintain domestic refinery throughput. JPMorgan believes export profits may not fully offset the increase in logistics costs in the fourth quarter.
The bank estimates that more than 60% of Sinopec’s very large crude carrier shipping exposure remains subject to spot freight rates, which rose from US$15 per barrel in the third quarter to more than US$40 per barrel in October.

Third-quarter refinery throughput rebounded 5.4% quarter on quarter, but was still down 18.6% year on year; domestic refined oil product sales rose 12.1% quarter on quarter and fell 13.3% year on year. The rebound came against a weak year-on-year comparison.
JPMorgan raised its 2026 earnings-per-share forecast for Sinopec’s H shares by 5% because of export profits, and lowered its 2027 forecast by 25% because of rising logistics costs. Its model uses the low end of the company’s range for freight cost increases and assumes measures including reserves, a modest reduction in refinery utilization and exports provide some support.

JPMorgan expects Sinopec’s domestic refined oil product sales to decline at a compound annual rate of approximately 3% over the next few years as electric vehicles and gas-powered heavy trucks become more common. Profit contributions from new businesses such as charging and hydrogen refuelling will take time to grow and may struggle to offset the decline in refined oil products in the near term.
The bank maintained neutral ratings on the A and H shares, rolling the price target horizon forward to June 2027, with respective targets of RMB 5.70 and HK$4.80.