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Operator: Good afternoon, everyone. Welcome to Sinopec Shanghai Petrochemical Co.’s 2025 Interim Results Conference. The management present at the conference are Mr. Xiaojun Guo, Chairman of the Board; Mr. Jun Du, Executive Director, Deputy General Manager and CFO; and Mr. Gang Liu, Board Secretary. The proceedings of today's meeting are as follows: it starts with a brief introduction by Mr. Xiaojun Guo, followed by Mr. Jun Du's sharing of the overall performance of the Company's 2025 interim results and a Q&A session. Please welcome Mr. Xiaojun Guo. Xiaojun Guo Good afternoon, ladies and gentlemen, analysts, fund managers, and friends from the media. First, on behalf of Sinopec Shanghai Petrochemical Co., I would like to express my warmest welcome and heartfelt gratitude to all the guests who have taken time out of their busy schedules to attend the Company's 2025 Interim Results Conference. In 1H 2025, facing the severe and complicated domestic and international economic situation and the trend of the industry, Shanghai Petrochemical always adhered to the concept of challenging the advanced level and aligning with the highest standards, actively responded to the challenges of operation and efficiency generation, and accelerated the construction of high-quality development projects. We made effort to fight the two-front battle of the production and operation and the construction of projects. The various work advanced in an orderly manner in accordance with the predetermined objectives. Looking back, the development of Shanghai Petrochemical cannot be separated from the capital market and long-term attention and support. Please continue to put forward valuable opinions and suggestions for the development of our company. We will continue to maintain good communication with the capital market, regularly report the development of the Company's dynamics and performance and strive to better perform to return your trust and support. On behalf of the Company, please welcome Mr. Jun Du, Executive Director, Deputy General Manager and CFO of the Company, to review the production and operation of Shanghai Petrochemical in 1H 2025 and the outlook of the operation in 2H of the year. Jun Du VP, CFO & Executive Director Good afternoon, ladies and gentlemen. I would like to briefly present the Company's operating results for 1H 2025. In 1H 2025, the external environment was unstable and uncertain. The tariff caused an unprecedented impact on the global economic order. China's GDP grew by 5.3% YoY in 1H of the year. Due to the tariff war, geopolitical fluctuations, and the accelerated increase in OPEC's production, the prices of the international crude oil market oscillated in a wide range. The contradiction between supply and demand in the market continued to stand out. The petrochemical industry was fiercely competitive. I would like to review Shanghai Petrochemical's production and operation in 1H 2025 and look forward to the business situation in 2H 2025 from four aspects: financial summary, business review, capital expenditure and outlook for 2H of the year. The first is the key financial indicators for 1H 2025. In 1H of the year. The key operating performance indicators prepared in accordance with IFRS were as follows: turnover of CNY39.5 billion, down 9.17% compared with the same period last year; profit before tax of minus CNY583 million, compared with CNY12.43 million for the same period last year; net profit attributable to the parent company of minus CNY449 million, compared with CNY2,845,000 for the same period last year; and earnings per share of minus CNY0.04. As of June 30, 2025, the Company's total assets amounted to CNY41,896 million, representing an increase of 0.5% as compared to December 31, 2024. Total liabilities amounted to CNY17,502 million, representing an increase of 5.72%. Equity attributable to shareholders of the parent company amounted to CNY24,293 million, representing a decrease of 2.94%. Net assets per share attributable to shareholders of the parent company amounted to CNY2.3, representing a decrease of 1.74%. Gearing ratio was 41.77%, up 2.06 percentage points from 39.71% as of December 31, 2024 Part II. Review of key performance in 1H 2025. In 1H of the year, in the face of increasingly severe and complex domestic and international economic situation and industry situation, the Company accelerated the construction of high-quality development projects and actively responded to the challenges of operating efficiency. We made every effort on the dual-line battle of production and operation and project construction. Overall, the work progressed in accordance with the predetermined objectives in an orderly manner. First, overall safety and environmental protection was under control. We promoted the compaction of the local grids and professional lines of management responsibility and the rectification of old devices’ special hidden danger. The rectification completion rate is 98.8%. We plan to complete all the rectification during the year. We carried out safety risk assessments, risk contracting activities and hidden danger investigation and management. We strictly controlled the risks of contractors and direct operations. We strictly carried out the qualification examinations of contractors and insisted on strict management without compromising. In 1H, the compliance rate of the comprehensive discharge of industrial wastewater, the controlled exhaust gas compliance rate, the rate of proper treatment and disposal of hazardous wastes were 100%. The average VOC concentration at the plant boundary was 62.4, down 9.7% YoY. Second, the refining and chemical integration boosted market expansion. Oil refining focused on increasing navigation, stabilizing gas and suppressing diesel fuel. It reduced the incremental volume of gasoline and diesel fuel and increased the proportion of high- grade gasoline by optimizing the flow direction of gasoline and diesel fuel and adjusting the structures of hydrocracking and catalytic products, and other measures. The chemical sector was around the optimization of raw material structures and increasing production of aromatics. The revenues of chemical light oil, triene, benzene and xylene yield improved YoY. The Company seized market opportunities to increase production and sales of petroleum coke and liquefied petroleum gas, optimized its thermoelectric power business, and implemented the staggered power generation and consumption to reduce the cost of carbon compliance. Thirdly, industrial transformation and upgrading were promoted in an orderly manner. Anchoring the high-end, intelligent and green development direction, the Company started the preparation of the Fifteenth Five-Year Plan. We accelerated the pace of project construction, comprehensive technological transformation and quality upgrading projects to complete the overall design review and optimization and adjustment work. We also worked on thermoelectric unit cleaning and efficiency improvement projects, comprehensive land development construction, elastomers and their supporting projects’ mechanical completion. We started the large- tow carbon fiber offsite construction projects and the Shanghai national hazardous chemical emergency rescue base project. We accelerated the pace of digital intelligence transformation and carried out the construction of five digital intelligence management domains, namely the geographic information domain, the planning and management domain, the production execution domain, the project construction domain, and the personal affairs domain. We continuously forged lean and efficient production organization and plan execution capability. We improved agile and high-quality product supply and technical service capability. Leading product development and application expansion capability, we cultivated new quality productivity. Fourth, we accelerated the release of innovation-driven effectiveness. We increased R&D and promotion of new chemical products, optimized synthetic material grades, and increased the production of high value-added products. We strengthened industrial cooperation, accelerated the development of 110KV ultra-high-voltage cable materials; and expanded the self-sale business of new products such as foaming materials and medical materials. We increased carbon fiber technology to improve and expand the market and sales capacity, continued to carry out the industrialization of 48K large-tow carbon fiber and thermoplastic aerospace composite material research, and promoted the industrialization of high-strength medium-modulus carbon fiber technology and its application research. We participated in the compilation of carbon fiber and its composite materials, with four national or group standards, two of which have been released. The group-standard industrial-grade polyacrylonitrile-based large tow carbon fiber yarn won the First Prize of Standard Innovation of China's Test and Material Standard Platform. Fifth, the effectiveness of change management became increasingly evident. We optimized the management mechanism, coordinated and improved the salary distribution and performance appraisal, and established a dynamic monitoring mechanism for key expenses such as total salary, labor cost and welfare cost. We strengthened the whole process of labor cost control, firmly establishing the concept that all costs are controllable. We controlled the cost of combustion, tapped the energy-saving potential, and controlled the cost of auxiliary materials such as triple agents in accordance with the consumption quotas. We strictly controlled the non-productive expenditures. In 1H of the year, the price of international crude oil market oscillated and fell. The contradiction between supply and demand in the market continued to be prominent. The unit processing cost of crude oil of the Company was CNY4,001.9 per ton, which was lower than that of the same period of last year by CNY379.86 per ton. The cumulative total of 6,324,900 tons of crude oil was processed, down 4.93% compared with that of the same period of last year. In 1H of the year, of the crude oil purchased by the Company, 3,966,800 tons, or 66.94%, came from the Middle East, 12.84% from the Americas, 11.76% from Africa, 6.24% from Europe, 1.81% from China's offshore oil and 0.41% from Australia. In 1H of the year, due to the supply and demand imbalance, the tariff war and other impact, the external environment was unstable. The factory prices of major chemicals were generally lower than the levels of the same period last year. By selecting the Asian petrochemical market and seven products related to the Company (including ethylene, benzene, ethylene glycol, paraxylene, polyethylene, polypropylene, acrylics), we could see that prices fell in 1H of the year compared to the prices in the beginning of the year. Except acrylics, the other products rebounded in 2Q. The following is an introduction to the domestic market demand for major products related to Shanghai Petrochemical in 1H of the year. Refined products decreased by 4.97% YoY, of which gasoline decreased by 6.96%. Diesel fuel decreased by 5.08%, jet fuel decreased by 4.4% and liquefied petroleum gas decreased by 0.03%. Chemical products increased by 27.9% YoY, of which ethylene increased by 20.29%. Pure benzene increased by 11.21%. Paraxylene decreased by 0.85%. Butadiene increased by 28.47%. Polyethylene increased by 11.33%. Polypropylene increased by 9.17% and acrylics increased by 1.16%. In 1H of the year, the Company's main commodities totaled 5,576,800 tons, representing a decrease of 4.35% compared with the same period last year. It processed 6,324,900 tons of crude oil, sown 4.93% compared with the same period last year. Of the main petroleum products, 3,992,900 tons of refined products were produced, down 6.81% YoY, of which 1,668,100 tons of gasoline increased by 0.14% YoY. 1,198,700 tons of diesel fuel represented a YoY decrease of 13.56%. 1,126,100 tons of aviation coal represented a year- on-year decrease of 8.62%. Liquefied gas was 335,400 tons, up 0.13%. Among the chemical products, 273,300 tons of ethylene were produced, up 24.34% YoY. 44,600 tons of butadiene was up 51% YoY. 174,800 tons of pure benzene was down 0.44% YoY. 352,900 tons of paraxylene was up 1.2% YoY. We produced 12,700 tons of ethylene glycol and 27,500 tons of ethylene oxide. Polyethylene was 265,200 tons, down 2.22% YoY. Polypropylene was 192,500 tons, down 4.56% YoY. Acrylics was 12,000 tons, down 3.29% YoY. In 1H of the year, the total sales of the Company's main products amounted to 5,578,500 tons, down 3.68% compared with the same period last year, of which 4,326,200 tons of oil refining products were sold, down 6.72% YoY. 1,252,300 tons of chemical products were sold, representing a year-on-year increase of 8.56%. The production and sales rate of products in 1H of the year was 99.94%. The rate of recouped payment was 100%. In 1H of the year, the average selling prices of the Company's oil refining and chemical products both decreased YoY due to the decline in crude oil prices and other factors, of which the average price of oil refining products was CNY4,836 per ton, representing a YoY decrease of 10.09%. The average price of chemical products was CNY6,769 per ton, representing a decrease of 10.84% YoY. The weighted average price of all products was CNY5,270 per ton, down 9.4% YoY. In 1H of the year, the share of net sales revenue of the Company's refinery products declined YoY. The share of revenue from chemical products and trading increased. The proportion of other business segments decreased, in which the share of revenue from refinery products fell from 66.53% to 62.46%, down 4.07 percentage points. The proportion of revenue from chemical products increased from 22.36% to 25.31%, up 1.95 percentage points. The share of income from trading petrochemical products increased by 3.12 percentage points from 8.39% to 11.51%. The share of other operating income decreased by 1 percentage point from 1.72% to 0.72%. The Company's net cash inflow from operating activities in 1H of the year amounted to CNY768 million, representing an increase of CNY517 million compared with the same period last year, mainly due to the decrease in cash paid for commodities during the reporting period as compared with the same period last year. The Company generated a net cash inflow of CNY734 million from investing activities, compared to a net cash outflow of CNY568 million in the same period last year. The net cash outflow from the Company's financing activities amounted to CNY1,281 million, compared to an advanced net inflow of CNY1,435 million in the same period last year, mainly due to the repayment of borrowings during the reporting period. Part III. Progress on Capital Expenditures. In 1H of the year, the Company's capital expenditure of CNY408 million was mainly used for the construction of the Shanghai Petrochemical Cogeneration Unit Clean and Efficiency Improvement Project. In 2H of the year, the Company will continue to push forward the implementation of projects such as the Cogeneration Unit Clean and Efficiency Improvement Project and the Large Tow Carbon Fiber Offsite Construction Project. Part IV. We look ahead to the business situation in 2H of the year. Looking ahead to 2H of the year, from a macroeconomic point of view, China's economy remains supported by stable growth despite uncertainties in the external environment and the pressure of internal structural adjustment. From the industry point of view, the market supply and demand pattern is grim. The new energy vehicle penetration rate and the stock market demand are squeezed. The chemical market is still in the trough of the boom cycle. From the Company's perspective, the production and operation in 2H of the year are still complex and severe. The Company will focus on the following five aspects of work in 2H of the year and make every effort to complete the annual objectives and tasks. First, we will make greater efforts on safety and environmental protection. We will do a good job of risk prevention, strengthen the responsibility of grid-based management at all levels, be serious on investigation and remediation, and highlight the standardization and the whole process of control. We will strictly and practically implement safe production, focusing on prevention and environmental protection management. We strive to create an A-grade green enterprise, strictly implement the SASAC’s ten restrictions. We will promote the construction of an internal risk control system and business risk prevention and control in accordance with the law. Second, we will make greater efforts to optimize the operation and promote the increase in volume and efficiency. We will do a good job of matching the lightness and heaviness of crude oil, optimize the way of crude oil into the plant, and give full play to the maximum value and optimal flow of materials in accordance with the principle of alkylene being suitable for alkene and fragrance being suitable for fragrance. We will strengthen energy-saving management and expense control and continue to promote cost reduction. We will strengthen communication, optimize product management, and pay close attention to production and marketing synergy. We will increase market share. Third, with greater efforts to ride on the innovation drive, we will promote transformation and upgrading. We will adhere to the development idea of refining to chemical, chemical to material, material to high-end, and park to ecological. We will accelerate the construction of key projects, the comprehensive technological transformation and quality improvement and upgrading projects. We will conduct in-depth study on the downstream layout of ethylene and propylene and do a good job in optimizing ethylene raw materials and product solutions. We will accelerate the construction of the large-tow carbon fiber off-site layout project. We will continue to improve the existing carbon fiber device technology research and production operation optimization. We will focus on expanding the large tow in the wind turbine blades, drones, automobiles and other areas of the scale of sales. We will speed up the realization of high-performance carbon fiber in the aerospace and other high-end areas of sales. We will construct a digital intelligent management domain, promoting the management system, the system process and process informationization. Fourthly, the reform and development should be carried out with greater efforts to continuously stimulate vitality. We will actively and steadily promote the compression of the management level, the optimization of the setup of systematic research institutions, the reform of the scientific research system, etc., to improve the effective incentive and constraint mechanism. We will strengthen the management of human resources pool. We will establish and improve the integration mechanism of production, marketing, research and utilization. We will further enhance the efficiency of product life cycle management. We will accelerate the revitalization and disposal of low and non-negative efficiency assets and continue to strengthen the three foundations of the work. Fifth, greater efforts on the construction of the team and the support of talent. In conjunction with the reform of flattened institutions, we will select and strengthen leaders and cadres at all levels. We will improve and perfect the job management system and improve the training and cultivation system. We will continue to promote the construction of the Learning Map Project and operate the human resources pool to revitalize human resources. We will work on the development of new quality productivity and digital transformation of the new requirements and continue to forge high-quality professional cadres and talent. That's the end of my presentation. Thank you.
Operator: Thank you for the introduction, Mr. Guo and Mr. Du. The following is the Q&A session. Before you ask a question, please introduce your organization and limit to two questions at a time. Please ask the first question. Participant I'm [inaudible] from BOCI. I have two questions. First, we've seen reports in the media that the government may publish a document on eliminating backward production capacity in the petrochemical industry. Has the management heard anything about that? If the things mentioned in the document are true, for example, refining below 2 million tons is to be phased out, how does the management feel this will affect our company? Another question: a big reason why we lost money in 1H of the year was due to inventory impairment. We are almost two months into 3Q. I would like to ask, in terms of what management understands, can we make a profit in 3Q? Xiaojun Guo Just now you mentioned that the government may introduce relevant policies to eliminate backward production capacity. This policy is not officially out so we can't comment on it. But the whole general trend is that the government is actively boosting the economy through relevant policies. Following last year's large-scale equipment renewal, consumer goods trade-in, old installations elimination, renovation and the requirements, the government may continue to introduce new policies. In fact, the Central Finance and Economy Commission also introduced some requirements on July 1, which are anti-involutionary. As you know, it also focuses on the need to manage low price competition among enterprises in accordance with the law. It guides enterprises to continuously improve the quality of their products and promotes the orderly withdrawal of backward production capacity, which are the trendier requirements that have already been demonstrated in many ways. It's also good for businesses and a challenge. In the future, the competitive order of the market will be more optimized. It will also be able to manage disorderly competition among enterprises and promote the adjustment of production capacity in key industries. I think it has a good guiding significance for us to optimize the industrial structure, improve the efficiency of resource allocation, guide the industry to establish a standardized and orderly market environment for the survival of the fittest. It promotes the development of petroleum refining enterprises towards the high-end, intelligent and green development. For Shanghai Petrochemical, in fact, we have been operating for more than 50 years. We have been doing equipment renewal, technological transformation and innovation non-stop. We are in such a big wave. We will seize the opportunity. Last year, we mapped out the old installations of more than 30 years. There are close to 18 sets, including some pressure ball tanks and atmospheric storage tanks. We mapped out a lot of these and will carry out large-scale equipment renewal and reconstruction in an orderly manner under the guidance of the government's policy in the future. From last year to this year, we have actively promoted the comprehensive technological transformation and quality upgrading projects, with a total investment of CNY21.3 billion. This project has received strong support from Sinopec, as well as strong support and assistance from the Shanghai Municipal Government. It has successfully passed the approval of the EIA report by the Shanghai Municipal Bureau of Ecology and Environment and the project approval by Shanghai Municipal Government at the end of February. The overall design approval within Sinopec has also been issued. The construction work of the project has been carried out. The effective promotion of this project is a good opportunity for us to implement large-scale upgrading and reconstruction, including the renovation of old plants. Therefore, we take this project to update the relevant old plants with the latest technologies and the highest standard emission requirements, which will bring positive impact for the latter's intrinsically safe operation, energy-saving, low-carbon, and emission reduction technologies. It will also boost the economic development of the region and the growth of demand for raw materials of the chemical industry, including the demand for shipping coal in Shanghai's shipping center. The state has introduced these policies to promote consumption and boost the economy. For Shanghai Petrochemical, from a certain point of view, it is also the right place and right time. We made the biggest investment we have made in 50 years. It can fit the requirements of the policy and our own needs. It lays a good foundation for the improvement of competitiveness in the future. Shanghai Petrochemical currently does not have the refining scale of less than 2 million tons. Our smallest is more than 2.5 million tons. There is one more question on the analysis of the reasons for the loss. I would like to ask Mr. Jun Du to answer it. Jun Du VP, CFO & Executive Director In 1H of the year, China’s accounting standards did the measurement and judgment of the Company's inventory of products at the end of the half year. The Company made a provision for impairment of CNY407 million in 1H of the year. It also reversed the impairment of CNY392 million in the same period. The Company's work on the impairment was in accordance with the standard requirements to regulate the conduct of the work. From the situation in 1H of the year, I have introduced that the international crude oil market price still experienced a wide range of oscillation, with an overall downward trend. Compared to the same period last year, the average price of the Company's refinery products decreased by 10% and the average price of chemical products decreased by almost 11% compared to the same period last year. At the same time, part of the Company’s equipment was scheduled to have maintenance this year. The processing volume was down in 1H compared to the same period. Just now you mentioned the situation in 3Q. From the current performance, the Company's various installations in 3Q are safe and smooth. The Company will not arrange the annual maintenance plan for the installations in 3Q. Considering the current market situation, we strive to be able to realize no loss in 3Q.
Operator: We have the next question. Participant I'm [inaudible] from Bank of America Merrill Lynch, and I'd like to ask a few more questions on inventory impairment. In 2Q, we also found that for the Company's crude oil procurement costs, compared to 1Q, the difference between the international standard was greater, i.e., we might have bought a little more expensive. The sources of procurement were adjusted and procurement from Europe declined a little. Was this change related to the procurement structure, or was it mostly because of the wide range of oscillations due to the timing, which resulted in a relatively high cost of our procurement? The main thing is to follow up on the cause of the inventory loss. Secondly, regarding the capital expenditure, the full year plan is CNY2.8 billion. Halfway through 1H of the year, the progress of the capital expenditure is relatively slow. I would like to ask the management whether they have considered revising the guidance for this year's capital expenditure downwards? Lastly, I would like to follow up the leader's answer to the first question about the inspection of the 30-year-old assets. In fact, Hunan Province requires inspection of assets older than 20 years. I believe that from an accounting point of view, 20 years is the depreciation period. I would like to ask the leader. If assets older than 20 years are classified as old assets, how many of our assets are older than 20 years? May this have an impact on production and operation? Xiaojun Guo I'll answer your last two questions first, one on capital expenditures and one on assets older than 20 years. We originally expected full-year capex to be CNY2.8 billion but the overall progress in 1H of the year was not more than half. We work throughout the year. Most of 1H of the year was going through the approval and review process. There is a pattern that 2H of the year is relatively larger than 1H of the year in terms of capital expenditures. As you have heard about the approval process for some of our projects, the progress is very sequential and it's all moving forward in an orderly manner. We are optimistic in our expectations for 2H of the year in terms of capital expenditures. But overall will we get CNY2.8 billion done? At present, we may still adjust downward to CNY2 billion or a little less, but in general, we have several major projects, including our thermoelectric power transformation project, the carbon fiber project in Inner Mongolia, and the overall technological transformation and quality upgrade projects, all of which will be advanced in an orderly manner. Capital expenditure will be carried out in an orderly manner. Regarding the renovation of the old installations old than 30 years, we have finished the investigation. 18 sets of production units, 50 pressure tanks and 37 storage tanks have been arranged with relatively stable renovation, withdrawal, new construction and so on. Some of them are included in the comprehensive technical renovation and quality improvement and upgrading projects while some are separate projects. As for the further investigation of installations that are more than 20 years old, this work is still in progress, but the scope will be wider. We are not able to judge what kind of policy the government will adopt in the future to manage these because our counterparts will face the same situation. We believe that the government will also arrange for the continuation of the relevant policy in a scientific and rational manner. Regarding the reasons for inventory impairment, I would like to ask Mr. Jun Du to answer. Jun Du VP, CFO & Executive Director Let’s briefly review some of the more significant things in the international crude oil market in 1H of the year. In January this year, the most important factors affecting the crude oil market was the U.S. sanctions against Russia. I believe that everyone should remember very clearly. Then there was the reciprocal tariff that the U.S. unleashed at the beginning of April. Those two things had a very big impact on the crude oil market in 1H of the year. Based on the market situation, we did some adjustments and optimization of our sources of crude oil procurement in 1H, as introduced earlier, in the Middle East, the Americas (mainly South America), Africa and Australia. As for the situation of crude oil procurement in 2Q and the market comparison that you just mentioned, it was introduced just now that the crude oil purchased by our payroll is still dominated by the Middle East, which is close to 57%. The crude oil in the Middle East is dominated by Dated Brent and Dubai-denominated, which is still different from the Brent crude oil that you just talked about. As described, in April, after the tariffs were kicked off, Saudi prices were adjusted upwards and overlaid on the impact of overseas freight rates. Crude oil procurement costs and processing costs went up. For the second aspect, as introduced, we had some units scheduled for overhaul in 1H of the year. Because of the need for overhaul, we are adjusting the varieties of crude oil that we purchase. The proportion of Middle East crude oil was increased in 2Q. This affects the cost of processing to some extent. Third, we have the transportation cost of crude oil from Yicheng to Zhoushan and from Zhongshan to Shanghai Petrochemical, which is a combination of factors. If you compare it to the Brent futures market price, there are implications in those areas. Regarding the impairment of the Company's inventories in 1H of the year, we focused on refinery products and chemical products. There was no provision for impairment of crude oil inventories in 1H of the year. Participant I have two small questions, Since Shanghai Petrochemical’s listing, the share price went from 6 dollars to only 1.4 dollars, very poor. What is the problem? While the price of gas was not USD150, it was still USD90. Your boss told me that there was no problem, no price adjustment centralized problem. You couldn't increase the price of your products. But when it got to USD150, there was another problem. The Company didn't hedge against the price of oil. It hasn't done so to this day. The refinery in Singapore, which is hedged at 150%, so the refinery in Singapore is making money to this day. That's a very important factor. The second problem is that a lot of the money we spend on gas adds up to a pitiful USD15 per transaction. Why don't we just have headquarters do all the procurement? If these problems are solved, Sinopec's share price could be 30 bucks. Xiaojun Guo I didn't necessarily understand all of what you just said. Let me repeat. One of the things you said is that we don't hedge our crude oil purchases and the second thing you said is that we have to go through an intermediary company for our crude oil purchases. I would like to ask Mr. Jun Du to answer that. Jun Du VP, CFO & Executive Director I would like to briefly reintroduce Shanghai Petrochemical's business development in crude oil procurement. Shanghai Petrochemical's crude oil procurement is mainly through China International United Petroleum & Chemicals. Our crude oil procurement is global and we consider the adaptability of our plant processing when purchasing. According to our subsequent plant processing capacity and process flow, we established a cost-effective crude oil evaluation model. We purchase crude oil through the cost-effective ranking of crude oil. You may have paid attention to our company for a long time. In fact, you can see our Shanghai Petrochemical crude oil procurement structure. According to the market changes, we made some adjustments and changes. In the last few years, we were based on the changes in the crude oil market, the Middle East crude oil procurement structure. In those two or three years, the magnitude of change was relatively large. Whichever crude oil was more cost-effective and more accessible, we increased our purchases. Combined with the current market situation, we did two aspects of work in the past few years according to the processing adaptability and capacity of our units. The first was to increase the proportion of light and heavy crude oil purchased and reduce the proportion of medium crude oil purchase to reduce the crude oil purchasing and processing costs through the combination of light and heavy crude oil. At the same time, efforts were made to improve and upgrade our ability to process heavy and poor-quality crude oil. The second aspect is that we are now sourcing crude oil. We have increased the percentage of crude oil coming into the plant on the second leg by tapping the capacity of our internal terminals. In 1H of the year, our crude oil entering the plant through two journeys exceeded 710,000 tons, representing an improvement of nearly 60% over the same period last year. A large amount of our crude oil is transported to Shanghai Petrochemical through pipelines and is supplied to Shanghai Petrochemical through pipelines after arriving at Zhoushan in the first journey. For the crude oil second journey capacity enhancement, we have two main purposes, one of which is part of the high-quality light crude oil transported into the plant through the second journey by water. The second is that some of the poor-quality crude oil is transported into the plant through the second course of water transportation. After entering the plant through second-pass water transportation, we can reduce crude oil procurement and processing costs through our system of mixing high and low streams, light and heavy crude oils, and then purchasing crude oils suitable for us according to the adaptability of the plant's processing. Xiaojun Guo Just to add to your concern about crude oil procurement: it is an important topic. Our crude oil procurement accounts for 70% of our total cost. We commission China International United Petroleum & Chemicals for procurement. United Petrochemical is also the most important crude oil buyer for all refineries under the Chinese flag. Its annual procurement volume reaches 200 million tons. In the international arena, it should be the largest buyer. By purchasing through it, I believe we should be ahead of many of our peers in terms of bargaining power and get a fairer price/performance ratio for crude oil. We are a processor and do a little hedging. Generally, we do a small amount of hedging. We mainly rely on balancing inventory by fast-in fast-out and a low-inventory strategy to process with the market. We do not gamble on the market or make big hedges because hedging requires a lot of financial support. Participant I'm [inaudible], a reporter from the Securities Times. I'd like to ask if the Company is going to introduce some new initiatives in 2H of the year in terms of market capitalization management. What are the specific arrangements for dividend payments, buybacks and equity incentives? Does the major shareholder have any plan to increase its shareholding? Gang Liu Joint Company Secretary & General Counsel The SSE has issued guidelines for the supervision of listed companies, mentioning the requirements of market value management. Our company also issued a market value management approach in May 2025. We have made some specific arrangements within this approach, including repurchase, equity incentives, and so on. One of the things that we, as a listed company held by a state-owned enterprise, have been focusing on for a long time is the protection of investor rights and interests and investor returns. We have set Hong Kong share buybacks as a regular practice. We have conducted Hong Kong share buybacks for three consecutive years starting from 2022, and have so far repurchased 280 million shares, which is also a relatively large amount. Each year we authorize the Board of Directors through the AGM to execute the buyback arrangements for the following year. It's about buybacks. Regarding equity incentives, Shanghai Petrochemical had a period of equity incentives and achieved relatively good results. As the efficiency was not the best and the benchmark produced some data differences in the past two years, equity incentives do not have new conditions. We use them as an important tool and we will consider the direction of equity incentives in the future once the conditions are right. On August 8 this year, we released an action plan to improve quality, efficiency and return. We feel that the most important thing of market value management is still the enhancement of the Company's value, mainly in the enhancement of endogenous value. Thus, we have made a lot of actions in our internal arrangement, as far as possible. We aim to ensure safe production, environmental protection and stability of the basis, improve our efficiency, ensure that we will generate profits in the future, and give returns to shareholders. We developed a lot of action items, which are also being promoted according to monthly and quarterly plans. Every month we also have a special report that we will make some internal arrangements. Following this direction, our market value management program should be able to achieve some results. Xiaojun Guo Regarding the issue of large shareholders increasing their holdings, it's not our decision. This question needs to be answered by Sinopec. We do welcome large shareholders to increase their holdings. Participant I'm [inaudible] from CICC. I would like to ask the leadership if there has been any evaluation of the economics of the ethylene renovation and upgrading project? If so, please describe it. Xiaojun Guo This project has gone through a relatively long period of gestation and related economic calculations, as well as the judgment of the future development trend. In general, it is in line with Sinopec's decision-making value for investment projects. In Sinopec, the return on investment of this project is still relatively advanced. The major shareholder, Sinopec, agreed to such a large project after careful comparison and consideration. This project also coincides with the policy support at the national level to promote large-scale equipment renewal and the requirements on the renewal, transformation and withdrawal of old plants (more than 30 years old). It also coincides with our feelings that new technologies have given us a better opportunity to enhance our competitiveness for so many years. We have put all these factors together. Through the economic calculations, we have made a full analysis of the feasibility and necessity of this project. The feasibility and necessity of this project was fully analyzed through economic calculations and supported by Sinopec and Shanghai Municipality. The economy was also affirmed. The investment of this project is more than CNY20 billion, which is relatively economic compared to the scale of the ethylene projects, which usually take CNY28 billion to CNY30 billion. This is mainly due to the support of Shanghai Petrochemical's good public works and the allocation of its own land. We saved a lot in the investment costs. Participant A few more cliché questions. One is about the refined oil quota, a topic that is not discussed much these days. But there is quite a lot of talk on fertilizers perhaps because China is going to open its exports. I would like to ask if there is any policy coherence to this. Have we heard any new buzz or policy change in the direction of refined oil export? The other thing is that our production of jet coal in 1H of the year was down, which was not quite consistent with the market demand. I would like to ask again: is the decline in jet coal because we are importing more medium-quality crude oil or is it due to the lightening of the plant? What kind of plan for 2H of the year is for this product? Jun Du VP, CFO & Executive Director Just now you mentioned the refined oil export quota. Shanghai Petrochemical exported 850,000 tons of refined oil in 1H of the year, of which diesel was 28,000 tons and jet fuel was 823,000 tons. We understand that the country has issued two quotas this year, roughly 31.8 million tons, which is 1.2 million tons less compared to the same period last year. We do not anticipate that there should be a very significant change in the export quota for refined oil products this year compared to last year. Regarding the production and sales of jet coal in 1H of the year that you mentioned, the main reason for the production and sales of jet coal in 1H of this year is the impact of the factors of the plant maintenance arrangement. As we arranged the coking plant and the reprocessing plant’s annual planned maintenance, which had a certain impact on the production of jet coal. In terms of the product mix adjustment of the Company's refined oil products, it is still to stabilize gasoline production, reduce diesel production, and make every effort to increase the production of jet fuel. The arrangement of our jet coal production and the sales plan is expected to accomplish more than 2.3 million tons for the whole year. Xiaojun Guo In 1H of the year, because of the refinery maintenance, the total amount of refining was down about 5% compared to the same period last year. It also caused the production of jet fuel to be down compared to last year. However, we can see that Shanghai Petrochemical's gasoline production in 1H of the year was still growing. This was in the context of a significant decline in gasoline consumption of the whole society to 6%. The decline in the Shanghai area was even greater. In the last few months, we saw more than 9% of decline but we rely on Sinopec's good end-user sales network. The gasoline share increased and the total amount of gasoline did not fall in 1H. Last two years, our refining volume fell by 5% but the volume of gasoline did not fall. It ensured that our refining efficiency could be further improved. Therefore, we should continue to work on this aspect in the future, stabilize our gasoline supply in the market, increase the supply of jet fuel, and significantly reduce the supply of diesel fuel to adjust the structure of refining products and adapt to the requirements of the trend of going to production capacity in the entire refining industry in the future.
Operator: We'll have the last question from the floor. Participant I'd like to follow up. The first one is about the Company's carbon fiber project. I'd like to ask what areas of the downstream market will be focused on for this product as our new direction? Second, what are the Company's strategic focuses during the Fifteenth Five- Year Plan period? What kind of strategic changes will there be? Gang Liu Joint Company Secretary & General Counsel Carbon fiber is also one of our company's key industries. As we all know, at present we have raw silk production capacity of 27,200 tons and carbon fiber production capacity of 7,600 tons. Small tow is mainly 1,500 tons of 12K, 24K, 3K. Large tow is 6,000 tons of 48K. High performance is 100 tons. In 2025, we made relatively great progress in carbon fiber. One was that our production and quality were steadily improving. The production cost continued to decline. The output, quality and energy consumption of the product reached the best level in history. The variety of carbon fiber was more abundant than ever before. At present, we not only have T300, T700, 48K large tows. We have developed the small tow of T8 carbon fiber, as well as 60K, 120K jumbo tow. These are some of the changes we have made in terms of innovation, production, technology and quality. For the future development, we created a thousand-ton sale in the wind power sector last year. We still maintain our dominant position in this area this year. To this end we invested in a 30,000 tons per year carbon fiber project in Inner Mongolia, which is now in the construction phase. We aim at the direction of the customer, a wind power customer. In the next three years and even to 2030, the use of wind power would see at least 20% increase per year. The main area and the Inner Mongolia region would have even more wind power consumption. This is one of our projects’ target directions. The second is the direction of energy storage. Energy storage is now also in development. The demand for carbon fiber is also increasing. This year, Shanghai Petrochemical tried to do low altitude economy and the health, sports and leisure field, in the future, we may also have relatively large development on low altitude economy and sports and leisure. Nowadays, the demand for prepreg increases day by day. In the energy storage industry, there is a great demand for pre-culture wire. In 1H of the year, our overall sales of pre-culture wire amounted to more than CNY6 million, which is a significant increase compared to last year. The future is mainly aimed at these directions, broadly speaking, wind power, energy storage, low-altitude economy, and the transportation of hydrogen storage, hydrogen storage screens or hydrogen storage equipment. The focus is the low cost of large tow, the high performance of small tow, differentiation, basic + high-end carbon fiber industry chain development. We not only focus on the manufacture of fiber, but also the development of downstream composite materials, the formation of the whole industrial chain of small tow + large tow, basic + high-end, general supplies + professional. We gradually build our full and strong carbon fiber industry chain. Xiaojun Guo I'd like to respond to some thoughts on the development of the Fifteenth Five-Year Plan. Overall, we will still adhere to our development strategy of four turns: refining to chemical, chemical to material, material to high-end, and park to ecological. We will adhere to such a development orientation to anchor the high-end, green, intelligent development direction and prepare our Fifteenth Five-Year development plan. We will promote further quality upgrading of our basic refining and chemical business, extend our new materials industry chain, and ultimately form a key petrochemical product foundation. This is our baseline volume. Then, we will continue technological innovation as support for our development. We use xharacteristic fine chemicals and high-end new chemical materials as the core, such an industrial system. At the same time, we also want to focus on the use of carbon 5 and carbon 9 resources in East China, extending the industrial chain and improving the added value of our products. We want to create a comprehensive utilization base for carbon 5 and carbon 9 resources. As Shanghai Petrochemical carbon separation technology is the country's leading, our development in this area has a relatively good technological accumulation and credibility among market users. In this regard, we will put their own strengths and advantages to further use. Of course, the high-end new chemical materials just mentioned have a much broader scope, including polyolefins and carbon fiber. Just now Mr. Liu has spoken of the advantages of our carbon fiber. All have very broad development prospects. Shanghai Petrochemical was built for the better life of the people. Back then, it was to solve the problem of people's food and clothing. To eat food, you need to grow food. You need to take up land to grow cotton. Only synthetic fibers perfectly solved these two needs, freed up the land, and completely changed China's historical situation of lack of food and clothing, fulfilling the very good mission. The future of Shanghai Petrochemical is still for the people's better life, from food, clothing, housing and transportation to better materials. We also hope that you can continue to pay attention and put forward good suggestions to us.
Operator: Thank you very much for your sharing and the management's detailed answers. If you have any other questions, please contact Shanghai Petrochemical PR team. Thank you again. Thank you, management. Let’s meet again next time. [END]