Preface

If you see an expensively priced piece of clothing in a supermarket, with a price three times that of ordinary brands, you would surely think the store owner is making a fortune, right?

But what if I told you that despite the high price of the clothing, the store owner is still mired in debt? This is the current predicament faced by Sinopec.

Most people would say that domestic fuel prices have reached as high as 8 yuan per liter, far exceeding the international level of 3 yuan. How could Sinopec still be in debt?

I. Why High Fuel Prices Cannot Eliminate Debt?

This question begins with Sinopec's debt. In 2024, Sinopec's total debt reached an astonishing 1155.591 billion yuan, an increase of 7.26% from last year.

Seeing these numbers, many people must be puzzled. Isn't it said that high fuel prices can make a lot of money? Why is there still so much debt?

The reality is that although fuel prices are high, Sinopec's wallet has not become fatter as a result. The hidden costs and tax pressures behind high fuel prices do not leave as much room for profit as one might think.

Many people see that domestic fuel prices far exceed those abroad and easily believe that Sinopec is making a killing. However, if you delve deeper, you will find that the high domestic fuel prices are not solely because Sinopec wants to earn more.

The sharp fluctuations in international fuel prices force Sinopec to raise domestic prices to ensure operations are not adversely affected. When international fuel prices rise, domestic fuel prices do not soar in tandem, and Sinopec bears the difference.Additionally, have you ever considered how much tax is actually included in each liter of fuel? Consumption tax, value-added tax, and other surcharges – these invisible costs ultimately accumulate on the consumer's fuel bill.

So, why does Sinopec still have so much debt? On one hand, in order to maintain market share and industry status, Sinopec has to engage in large-scale infrastructure construction and technological updates, all of which require substantial financial investment.

On the other hand, when a company attempts to finance through debt, it's like trying to put out a fire with a bucket of water – the effect may not be noticeable in the short term, but the long-term accumulated financial pressure is unbearable.

So, after understanding these financial details behind Sinopec, does it seem that the previously simple logic of profit doesn't hold up as much?

II. The Contradiction Between International Oil Price Fluctuations and the Domestic Market

Let's first examine why there is such a significant difference between international and domestic oil prices.

International oil prices fluctuate like a roller coaster, going up and down, but our domestic oil prices remain stubbornly high. Behind this, there are state-owned enterprises like Sinopec playing the role of a "buffer."

When international oil prices soar, Sinopec sometimes does not immediately raise domestic oil prices but instead chooses to absorb some of the costs to prevent a significant impact on the domestic market.

However, this heroic act comes at a price, directly leading to a reduction in corporate profits.

Now let's discuss how Sinopec bears the risks amidst oil price fluctuations.If the fluctuations in oil prices are fully passed on to consumers, then the monthly fuel expenses might fluctuate like the stock market, causing heart palpitations with their ups and downs.

To avoid this situation, Sinopec has to adopt certain strategies, such as futures contracts and other financial instruments to hedge risks. However, these operations are not only complex but also costly, and ultimately, these costs will be reflected in the oil prices.

Therefore, in the face of persistently high oil prices, domestic consumers typically react with some discontent. Every time the oil price rises, social media explodes with complaints, with everyone lamenting that their wallets have become a bit emptier.

But Sinopec is also not easy under such market pressures. On one side, there is the cost pressure brought by the fluctuations in the international market, and on the other side, there is the dissatisfaction of domestic consumers with high oil prices. This leaves Sinopec feeling like it's stuck between two stones, unable to move.

This is why, although Sinopec may appear financially secure on the surface, in reality, it bears immense pressure and challenges behind the high oil prices.

III. Changes in Tax Policies and Their Impact on Sinopec

Everyone knows that taxes are a significant expense for any business. But have you ever considered how heavy the tax burden is for energy giants like Sinopec?

Firstly, let's look at the types of taxes Sinopec has to face: consumption tax, value-added tax and its surcharges, etc. Do these sound complicated? Adjustments to these tax types often give Sinopec's finance team a headache.

For example, whenever the oil price is increased, the value-added tax immediately follows, which is like suddenly digging a big pit right in front of the door to victory. The enterprise is about to step forward but has to fall into the pit to fill it. This not only affects Sinopec's cash flow but also its profit margin.

Secondly, there is the country's low-carbon policy. As the global climate change issue continues to gain热度, the country is placing more and more emphasis on environmental protection and gradually implementing low-carbon policies. What does this mean?For Sinopec, which relies on petrochemical products for its livelihood, future taxes and fees will only increase, not decrease. Consider that the cost per liter of oil is rising, but the market selling price cannot be arbitrarily increased. This survival in the crevices makes Sinopec tread on thin ice.

So how should Sinopec deal with such tax challenges? The answer may not be so simple, but it must include measures such as optimizing cost structure and improving operational efficiency.

In this situation, Sinopec not only needs to maintain competitiveness in the oil market but also needs to find a way to survive in the quagmire of taxes.

In short, Sinopec's tax dilemma may make its progress difficult. But don't forget that every challenge is also an opportunity for transformation.

IV. Will Sinopec's future fall into a deeper quagmire?

In today's world of resource scarcity and fierce competition. In order not to be eliminated by the market, Sinopec has to take risks and invest heavily in expansion.

This is like speeding on the highway, dodging obstacles ahead while accelerating forward. Sinopec's strategy has strengthened its market position in a short period of time, but it has also led to a sharp increase in its debt levels. This is a bit like a gambler increasing bets in the hope of winning a big prize, but facing the risk of losing everything.

Over the years, Sinopec's strategic investments have mainly focused on technological upgrades and infrastructure construction.

In order to improve refining efficiency, Sinopec continuously introduces and independently develops new technologies. At the same time, in order to expand the market, Sinopec is also looking for new oil field resources globally, all of which require huge capital investment.

Although these investments seem to be necessary steps for the company's future development, they have greatly increased financial pressure in the short term. The question is, can this "desperate" strategy really bring the expected returns to Sinopec?In the battle to maintain competitiveness, the challenges faced by Sinopec are multifaceted. In addition to financial issues, market uncertainties often put Sinopec's strategies to the test.

Fluctuations in oil prices, changes in international political and economic situations, and even the global trend of energy transition all directly affect the effectiveness of Sinopec's investments. Under such circumstances, Sinopec has to be more cautious in balancing its strategic investments and debt management to ensure that it does not fall into financial difficulties due to a single large investment.

The key to whether Sinopec can extricate itself from the quagmire of debt lies in how it optimizes its debt structure and improves investment efficiency.

If Sinopec introduces more risk management measures, such as diversifying investments to spread risks or reducing the financial pressure on individual projects through partnerships.

At the same time, strengthening internal cost control and improving the efficiency of capital use are also effective strategies to escape financial difficulties. Perhaps only in this way can Sinopec ensure its financial security while maintaining competitiveness and moving forward steadily into the future.

In conclusion, the development of Sinopec has more uncertainties, but it is also full of opportunities and hope.

How to find the way forward in the storm, the future of Sinopec is still worth our continued attention.