PetroChina & Sinopec Worsen

You might be tempted to think that the equation "Chinese Company + Oil Firm = Huge Success," based on the fact that economic growth in China continues to lead the world, and oil companies are still performing at or near record levels.  But you'd be wrong, in the Chinese petrochemical sub-sector, at least.

An AP report this morning talks about how PetroChina (PTR - Analyst Report) has taken it on the chin in net profit for the first half of 2008, down 34.5%.  Price controls implemented by the communist Chinese government have forced petrochemical companies in the country to absorb higher costs themselves, rather than pass them along to consumers.  The article quoted Sinopec's (SHI - Analyst Report) chairman as saying this is "the worst year ever for the Chinese petrochemical sector, and the worst is still not yet to pass."

Zacks senior analyst Sheraz Mian has been ahead of this story, and has a Hold recommendations on PTR shares currently.  The analyst had this to say in his most recent report on the company: "Relative to the super majors, the ADRs trade at a significant premium, primarily reflecting the company's leverage to the high-growth Chinese market. But fuel price caps and heavy taxes offset most, if not all, of the Chinese market positives, in our view."

Another Zacks senior analyst, Paul Raman, CFA, reduced his recommendation of Sinopec from Buy to Hold back in June, where he was quoted thusly: "Revocation of government price controls in the future, higher crude oil prices and increased competition are some of the major concerns for the company."