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Sinopec shares jump 5% on better-than-expected earnings

image captionChina's economic expansion has seen an increase in demand for refined oil products in the country

Shares of China Petroleum & Chemical Corp (Sinopec) jumped at the Hong Kong Stock Exchange after the company reported better-than-expected earnings.

Sinopec's shares closed 6.6% higher on Monday after it reported a net profit of 41.2bn yuan ($6.4bn; £3.9bn) for the first six months of the year.

That was a 12% surge from 36.8bn yuan net profit during the same period last year.

Sinpoec is Asia's biggest oil refiner by volume.

The company said robust domestic demand resulted in an increase in prices of refined oil products, which helped to boost its performance.

Double edged sword?

One of the biggest contributors to Sinopec's profits in the first half of the year was a surge in earnings from its exploration and oil production business.

Sinopec said it produced 150 million barrels of crude oil and earned a profit of 112.6bn yuan in the sector, a 24% jump from the same period last year.

Analysts said that while higher crude oil prices resulted in good profits in the exploration division, they also caused problems in other parts of the business.

"In the down stream sector, the refining business, they have to contend with higher input costs, so that is going to hurt their profits," Calvin Lee of Platts told the BBC's Asia Business Report.

That was evident in Sinopec reporting a 12.2bn yuan loss in its refining subsidiary, compared with a 5.7bn profit last year.

Controlled prices

Prices of refined oil products are controlled tightly by the Chinese authorities.

While they have raised prices this year, fuel for example, analysts said the increase was not enough to offset the extra cost of higher crude oil prices.

They said that rising consumer prices in China played a key role in deterring the government from increasing the cost of oil products.

"Inflation is a big factor in China, that has been slowing down the number of times they have actually adjusted prices." Platts' Mr Lee said.

Sinopec said the difference in increase in relative prices hurt its earnings in the refining sector.

"The crude price increased significantly while the price of domestic refined oil products was strictly regulated, therefore the segment suffered an operating loss," the company said.

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