Home » Business » Biz Commentary
Refining margins improved after fuel price hike
By Cheng Khoo and Gordon Wai |
August 15, 2012, Wednesday
|
Print Edition
Print Edition
AFTER the last price cut on July 9, the recent international crude oil price rally has triggered the mechanism for price hikes effective on August 10.
The National Development and Reform Commission increased the ex-refinery price of gasoline by 4.9 percent from 7,900 yuan (US$1,240) per ton to 8,290 yuan per ton and for diesel by 5.2 percent from 7,110 yuan per ton to 7,480 yuan per ton. This price adjustment would be the sixth this year, after the NDRC increased prices on February 8 and March 20, and reduced prices on May 10, June 9 and July 9.
Using the six-week lagged crude price, August's refining margins are likely to approach the break-even levels at a negative US$0.7 per barrel, indicating losses should narrow from July's average of a negative US$9.9 per barrel and a negative US$14.80 per barrel on average for the second quarter of 2012.
On a quarterly basis, we believe that refining margins have likely bottomed in the second quarter of 2012. Assuming that international crude oil prices remain at current levels and that there are no further price changes in September, crude costs should increase, and we expect margins to fall back in September.
However, we continue to expect that third-quarter margins should improve from the second quarter. As such, we believe that domestic refining margins bottomed in the second quarter and will likely improve in the second half, a trend that is in line with our expectations.
Despite our assumption that refining margins should improve in the third quarter and the fact that China's consumer price growth eased to 1.8 percent in July, we believe the introduction of a new pricing mechanism will still be difficult, given that refining margins remain in the negative territory.
Since it would make sense to implement a new pricing mechanism only on a positive margin trend, it implies that a price hike would still be necessary. However, given the government's intention to boost the domestic economy gradually, it is unlikely that it will inflate fuel prices more than necessary.
We maintain our recommendations for Sinopec, PetroChina and Shanghai Petrochem. Sinopec is our near-term top pick since its share price has lagged behind its peers and the index this year as the market has been expecting poor earnings. In line with our view that the domestic refining margins have already bottomed out in the second quarter, we think that the stock should start to react positively to better quarters ahead. On the other hand, challenges in the natural gas sector remain for PetroChina as we expect losses to start mounting in that sector from the third quarter onwards.
Cheng Khoo and Gordon Wai are analysts with BNP Paribas Securities (Asia) Ltd. The article was based on a research note issued on August 10. The opinions are their own.
The National Development and Reform Commission increased the ex-refinery price of gasoline by 4.9 percent from 7,900 yuan (US$1,240) per ton to 8,290 yuan per ton and for diesel by 5.2 percent from 7,110 yuan per ton to 7,480 yuan per ton. This price adjustment would be the sixth this year, after the NDRC increased prices on February 8 and March 20, and reduced prices on May 10, June 9 and July 9.
Using the six-week lagged crude price, August's refining margins are likely to approach the break-even levels at a negative US$0.7 per barrel, indicating losses should narrow from July's average of a negative US$9.9 per barrel and a negative US$14.80 per barrel on average for the second quarter of 2012.
On a quarterly basis, we believe that refining margins have likely bottomed in the second quarter of 2012. Assuming that international crude oil prices remain at current levels and that there are no further price changes in September, crude costs should increase, and we expect margins to fall back in September.
However, we continue to expect that third-quarter margins should improve from the second quarter. As such, we believe that domestic refining margins bottomed in the second quarter and will likely improve in the second half, a trend that is in line with our expectations.
Despite our assumption that refining margins should improve in the third quarter and the fact that China's consumer price growth eased to 1.8 percent in July, we believe the introduction of a new pricing mechanism will still be difficult, given that refining margins remain in the negative territory.
Since it would make sense to implement a new pricing mechanism only on a positive margin trend, it implies that a price hike would still be necessary. However, given the government's intention to boost the domestic economy gradually, it is unlikely that it will inflate fuel prices more than necessary.
We maintain our recommendations for Sinopec, PetroChina and Shanghai Petrochem. Sinopec is our near-term top pick since its share price has lagged behind its peers and the index this year as the market has been expecting poor earnings. In line with our view that the domestic refining margins have already bottomed out in the second quarter, we think that the stock should start to react positively to better quarters ahead. On the other hand, challenges in the natural gas sector remain for PetroChina as we expect losses to start mounting in that sector from the third quarter onwards.
Cheng Khoo and Gordon Wai are analysts with BNP Paribas Securities (Asia) Ltd. The article was based on a research note issued on August 10. The opinions are their own.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
