Annual Report 2012

Financial Statements (PRC)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2012
54 FINANCIAL INSTRUMENTS (Continued)
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
(a) Currency risk
Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured.
The Group’s currency risk exposure primarily relates to short-term and long-term debts denominated in US Dollars, Japanese Yen and Hong
Kong Dollars, and the Group enters into foreign exchange contracts to manage currency risk exposure.
Included in short-term and long-term debts of the Group are the following amounts denominated in a currency other than the functional currency
of the entity to which they relate:
130
Annual Report 2012 CHINA PETROLEUM & CHEMICAL CORPORATION
The Group The Company
2012 2011 2012 2011
millions millions millions millions
Gross exposure arising from debts and borrowings
US Dollars USD 2,405 USD 1,794 USD 66 USD 42
Japanese Yen JPY 10,753 JPY 14,532 JPY 10,753 JPY 14,532
Hong Kong Dollars HKD 13,511 HKD 12,847 HKD 13,511 HKD 12,847
A 5 percent strengthening of Renminbi against the following currencies at 31 December 2012 and 2011 would have increased net profit for the
year and retained profits of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign
exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant
exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis
for 2011.
The Group
2012 2011
RMB millions RMB millions
US Dollars 567 424
Japanese Yen 29 44
Hong Kong Dollars 411 391
Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in
the functional currency of respective entity of the Group.
(b) Interest rate risk
The Group’s interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable rates and at
fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates of repayment of shortterm
and long-term loans of the Group are disclosed in Note 20 and Note 28, respectively.
At 31 December 2012 it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held
constant, would decrease/increase the Group’s net profit for the year and retained profits by approximately RMB 577 million (2011: RMB 271
million). This sensitivity analysis has been determined assuming that the change in interest rates had occurred at the balance sheet date and the
change was applied to the Group’s loans outstanding at that date with exposure to cash flow interest rate risk. The analysis is performed on the
same basis for 2011.
(c) Commodity price risk
The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil and refined petroleum
products. The fluctuations in prices of crude oil and refined petroleum products could have significant impact on the Group. The Group uses
derivative financial instruments, including commodity futures and swaps, to manage a portion of such risk.
At 31 December 2012, the Group had certain commodity contracts of crude oil and refined oil products designated as qualified cash flow hedges
and economic hedges. At 31 December 2012, the net fair value of such derivative hedging financial instruments is derivative financial assets of
RMB 1,006 million (2011: RMB 837 million) recognised in other receivables and derivative financial liabilities of RMB 1,032 million (2011: RMB
684 million) recognised in other payables.
At 31 December 2012, it is estimated that a general increase/decrease of USD 10 per barrel in crude oil and refined petroleum products, with
all other variables held constant, would decrease/increase the Group’s profit for the year and retained profits by approximately RMB 221 million
(2011: increase/decrease RMB 563 million), and increase/decrease the Group’s capital reserve by approximately RMB 152 million (2011: RMB
450 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the
change was applied to the Group’s derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed
on the same basis for 2011.