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China raises fuel prices 6-7pc

March 20, 2012

BEIJING, March 20 — China will raise retail gasoline and diesel prices by between 6 and 7 per cent from today, marking the biggest increase in 33 months, a move that will help refiners reduce heavy losses but is unlikely to hit demand in a big way.

Retail ceiling prices will rise 600 yuan (RM285) per tonne, oil company officials who received official notice of the change said. After the increase, benchmark diesel will be about US$1.22 (RM3.66) per litre and 90-octane gasoline US$1.17.

File photo of a security guard walking past Range Rover cars outside a dealership in Beijing. — Reuters picFile photo of a security guard walking past Range Rover cars outside a dealership in Beijing. — Reuters picThough the timing of the increase — the second in just over five weeks — was much anticipated due to a spike in global crude prices, the range of the rise was bigger than expected.

“That is encouraging. I was expecting only an incremental increase, like 3 per cent,” said Gordon Kwan, head of energy research of M i rae Asset Management in Hong Kong.

“It’s a bold move by the NDRC (National Development and Reform Commission) ... looks like inflation has fallen off quite sharply recently, so it is a good politically-timed window.”

The hike will help compensate refiners for most of the recent rises in crude costs , which rallied more than 10 per cent during February, and help maintain production.

The increase is not yet big enough to choke oil demand in the world’s second largest oil importer, industry watchers said.

A delayed rise would have threatened to tighten fuel supplies and led to artificial shortages as wholesalers and retailers have been holding back supplies in recent weeks, awaiting the hike.

“With rampant consumption in the spring ploughing season about to come and volatile situation in the Middle East persisting, adjusting fuel prices in a timely manner was an important way to ensure domestic market supply and national energy security,” the (NDRC) said in a news release to explain the price move.

“The economy is still growing, albeit at a slower pace, oil firms continue building new refineries and storage tanks, and Premier Wen (Jiabao) also promised subsidies to some fuel users if fuel prices were hiked,” said a Shanghai-based oil analyst.

The owners of China’s expanding fleet of private cars will still barely blink at the record pump prices, now roughly 20 per cent higher than in the United States and more than 50 per cent higher than Chinese rates of three years ago.

But it may mean greater pain for some industrial users and logistics firms that have already been feeling the pinch of high diesel prices.

“That is why Premier Wen said that growth would have to be slowed down in China,” said Mirae’s Kwan. “One reason is because of high energy prices. Those who cannot afford the extra prices would have to shut down.”

Grain producers, fishery, forestry, urban and rural public transportation will continue to receive fuel subsidies from the government, the NDRC said.

Going by China’s fuel pricing formula, the government may consider lifting fuel prices if a moving average price for a basket of crudes rises more than 4 per cent in a month.

Crude oil prices have increased more than 10 per cent since China’s last fuel price increase on February 8, the NDRC said.

“Putting aside previous lags in fuel price increases compared with crude cost gains, fuel prices need to rise some 650 yuan a tonne to just offset the increases in crude oil costs since the last price adjustment,” another oil analyst said.

“An aggressive move was needed to bring refineries back to positive margins.”

China last raised fuel prices in February, lifting gasoline and diesel rates 3 to 4 per cent to record highs.

The government, worried about inflation, has often postponed raising prices in the past two years, meaning refiners often run at a loss as they are unable to pass on any increases in crude oil costs to consumers.

China’s inflation has been easing in past quarters, but Zhang Ping, head of the powerful NDRC, warned that the government could not lower its guard against inflation risks.

Chinese oil firms often make a profit on oil and gas production, fuel sales and chemical businesses but their refineries bear the brunt of losses caused by fuel price controls.

Shares of leading refiner Sinopec Corp and PetroChina traded stronger than the broader Hang Seng Index in Hong Kong yesterday but their domestically traded shares were weaker than the benchmark Shanghai Composite index. — Reuters

 

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