China announces pricing reforms as fuel costs cut under old mechanism
By Richard Fu |
March 27, 2013, Wednesday
|
Print Edition
Print Edition
FUEL prices are to be cut by more than 3 percent from today to reflect lower crude oil prices, the government said yesterday, as it also announced long-awaited pricing reforms.
In the first price cut this year, decided under the old pricing system, gasoline and diesel will fall by 310 yuan and 300 yuan per ton, or 3.2 percent and 3.4 percent, respectively.
In Shanghai, the ceiling retail price for 93-octane gasoline falls to 7.74 yuan a liter from 7.99 yuan while 97-octane gasoline drops to 8.24 yuan from 8.50 yuan. Zero-grade diesel now sells for 7.65 yuan, down from 7.91 yuan. Pump rates vary from province to province.
China has adjusted fuel prices 25 times - 10 cuts and 15 rises - under the old mechanism, which was introduced in late 2008.
The pricing reforms announced yesterday will shorten the price adjustment cycle and remove a threshold of minimum changes in crude rates.
They could help improve profit margins in China's refining industry which has been long subject to government price controls.
"This is a big milestone for the energy industry and a big win for the refiners as the new scheme should lead to more market-driven prices which will lead to improved profitability in the sector," Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong, told Reuters.
Previously, prices could be adjusted when the 22-day moving average of a basket of international crude, based on Brent, Dubai and Indonesia's Cinta, changed more than 4 percent.
Under the new system, the government will adjust gasoline and diesel prices every 10 working days and scrap the 4 percent trigger point, the National Development and Reform Commission, which sets energy prices in China, said yesterday.
"This should lead to more stable refining margins and an end to the significant refining losses during periods of oil price inflation," Sanford C. Bernstein & Co analyst Neil Beveridge said.
Sinopec Corp, Asia's largest refiner, made an operating loss of 11.9 billion yuan (US$1.91 billion) in its refining division last year, according to its earnings results released at the weekend.
State oil companies like Sinopec and PetroChina suffered losses as domestic fuel prices often lagged the gains in the cost of crude oil.
The government also wants to use the more market-linked scheme to curb wasteful fuel consumption, as China, the world's second-largest oil user, is set to double its fuel use by 2030.
"After the adjustments the mechanism has taken a further step towards market liberalization, and will more flexibly reflect changes in the international market and help guarantee domestic market supplies," the NDRC, China's top economic planner, said on its website.
The commission said it can still decide to delay or reduce the level of fuel price changes in the case of high domestic inflation or when international crude prices spike.
Prices will also not be adjusted if the resulting fuel price changes will be less than 50 yuan per ton, it said.
Such changes will be reflected in the following price adjustment.
The commission said it will also change the benchmark international crude prices as a reference for fuel price adjustment so as to better reflect China's import structure, but it gave no details.
Analysts say natural gas pricing is likely to be the next reform in the energy sector. Price controls on natural gas have made importing gas a losing proposition for companies led by PetroChina Co, which has been ramping up imports to meet a growing demand for the cleaner-burning fuel.
In the first price cut this year, decided under the old pricing system, gasoline and diesel will fall by 310 yuan and 300 yuan per ton, or 3.2 percent and 3.4 percent, respectively.
In Shanghai, the ceiling retail price for 93-octane gasoline falls to 7.74 yuan a liter from 7.99 yuan while 97-octane gasoline drops to 8.24 yuan from 8.50 yuan. Zero-grade diesel now sells for 7.65 yuan, down from 7.91 yuan. Pump rates vary from province to province.
China has adjusted fuel prices 25 times - 10 cuts and 15 rises - under the old mechanism, which was introduced in late 2008.
The pricing reforms announced yesterday will shorten the price adjustment cycle and remove a threshold of minimum changes in crude rates.
They could help improve profit margins in China's refining industry which has been long subject to government price controls.
"This is a big milestone for the energy industry and a big win for the refiners as the new scheme should lead to more market-driven prices which will lead to improved profitability in the sector," Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong, told Reuters.
Previously, prices could be adjusted when the 22-day moving average of a basket of international crude, based on Brent, Dubai and Indonesia's Cinta, changed more than 4 percent.
Under the new system, the government will adjust gasoline and diesel prices every 10 working days and scrap the 4 percent trigger point, the National Development and Reform Commission, which sets energy prices in China, said yesterday.
"This should lead to more stable refining margins and an end to the significant refining losses during periods of oil price inflation," Sanford C. Bernstein & Co analyst Neil Beveridge said.
Sinopec Corp, Asia's largest refiner, made an operating loss of 11.9 billion yuan (US$1.91 billion) in its refining division last year, according to its earnings results released at the weekend.
State oil companies like Sinopec and PetroChina suffered losses as domestic fuel prices often lagged the gains in the cost of crude oil.
The government also wants to use the more market-linked scheme to curb wasteful fuel consumption, as China, the world's second-largest oil user, is set to double its fuel use by 2030.
"After the adjustments the mechanism has taken a further step towards market liberalization, and will more flexibly reflect changes in the international market and help guarantee domestic market supplies," the NDRC, China's top economic planner, said on its website.
The commission said it can still decide to delay or reduce the level of fuel price changes in the case of high domestic inflation or when international crude prices spike.
Prices will also not be adjusted if the resulting fuel price changes will be less than 50 yuan per ton, it said.
Such changes will be reflected in the following price adjustment.
The commission said it will also change the benchmark international crude prices as a reference for fuel price adjustment so as to better reflect China's import structure, but it gave no details.
Analysts say natural gas pricing is likely to be the next reform in the energy sector. Price controls on natural gas have made importing gas a losing proposition for companies led by PetroChina Co, which has been ramping up imports to meet a growing demand for the cleaner-burning fuel.
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