Sinopec Q1 2026: Refining Windfall Masks a Chemicals Complex Under Pressure
Sinopec's refining operation earned RMB 18.936 billion in EBIT in the first quarter of 2026 — its strongest segment contribution by a wide margin — as rising crude prices generated an inventory gain and by-product margins widened. Net profit attributable to shareholders rose 28.2% year-on-year to RMB 17.006 billion on revenues down 3.9% to RMB 706.7 billion, a combination that tells you the margin environment was considerably better than the top line suggests. For the crack spread complex, the read is constructive; for naphtha and petrochemicals, it is not.
The refining story turns on two mechanisms. First, Sinopec processed 62.02 million tonnes of throughput, essentially flat against the prior year (-0.2%), but deliberately shifted the output mix away from light chemical feedstocks — down 12.6% to 9.90 million tonnes — and toward transportation fuels. Gasoline production rose 1.4% to 16.41 million tonnes, diesel 2.2% to 12.98 million tonnes, and jet fuel the standout at 4.3% to 8.67 million tonnes. The feedstock-to-fuels rotation is a direct read on China's aviation recovery running ahead of petrochemical demand. If Sinopec is pulling feedstock into jet at this rate through its refinery complex, the incremental Atlantic or Middle East barrel competes for a tighter net pool of finished kerosene.
Second, the positive inventory revaluation: Brent averaged $80.6 per barrel in Q1, up 6.5% year-on-year, amplified by the Middle East escalation in March. Crude held in refinery inventory appreciated, directly lifting refining EBIT. The effect is mechanical — it reverses when crude falls — which means the Q1 refining margin print overstates the sustainable run rate. The naphtha-to-ethylene chain, by contrast, had no similar buffer.
Sinopec's chemicals segment posted EBIT of negative RMB 1.334 billion as ethylene production dropped 8.0% to 3.553 million tonnes and synthetic resin fell 9.5% to 5.138 million tonnes. The company cited "continuously narrowing chemical margins" and reduced cracker utilisation accordingly. Light chemical feedstock intake was cut precisely because the spread between naphtha feedstock cost and ethylene and polymer realisations does not justify running hard. For the naphtha crack, this is a bearish read: one of Asia's largest naphtha buyers is signalling it will take less, not more, through H1. Synthetic rubber production also fell 7.5% to 380,000 tonnes, confirming the demand weakness is broad-based across the petrochemical chain.
The natural gas segment delivered a subtler negative: Sinopec's realised gas price fell 10.5% year-on-year to RMB 2.13 per cubic meter. Production held essentially flat at 370.0 billion cubic feet (+0.4%), but the domestic price compression is consistent with Beijing's effort to cap industrial gas costs even as overall Chinese gas demand rose 3.1% year-on-year. E&P EBIT came in at RMB 13.047 billion, supported by a modest Brent uplift with realised crude at $71.69 per barrel, up just 0.3%. Domestic crude volumes rose 1.0% to 63.41 million barrels; overseas fell 4.9% to 6.39 million barrels — a modest decline but one that has accumulated over several quarters.
Capex of RMB 25.168 billion in the quarter was heavily E&P-weighted at RMB 15.586 billion, directed at Jiyang and Tahe crude capacity and West and South Sichuan gas development. The RMB 4.208 billion chemicals capex committed to a new Jiujiang aromatics unit and the Maoming ethylene project signals the company is building through the margin trough rather than cutting — a medium-term addition to domestic ethylene and PX supply once commissioned, with negative implications for regional spreads.
Operating cash flow swung to negative RMB 5.558 billion from positive RMB 8.138 billion a year earlier, a reversal of RMB 13.7 billion. Sinopec attributed the shift to margin deposit payments on crude hedges as prices spiked in March, combined with inventory build. If crude settles below the Q1 average in the coming quarter, the hedge margin release could produce a meaningful operating cash inflow recovery and reduce the balance sheet draw.
What to Watch
- Singapore jet crack and regional kerosene exports: Sinopec's 4.3% jet fuel production ramp is demand-led; sustained at this rate, it tightens the Asian kerosene balance heading into summer
- Naphtha crack NWE and Asia: Sinopec's ongoing feedstock demand reduction is a persistent headwind; watch whether Q2 utilisation recovers or chemical margins remain negative
- ICE Brent front-month vs $80.6/bbl: the inventory gain mechanism that drove Q1 refining EBIT reverses below Sinopec's Q1 average; Q2 Brent trajectory is the key swing variable
- Maoming ethylene and Jiujiang aromatics commissioning timelines: both projects add domestic petrochemical supply and will pressure MEG, PX, and synthetic resin spreads on start-up