Domestic refiners win some relief with fuel price rise
Beijing's move to raise retail fuel prices is expected to ease the pressure on domestic refiners but may still not be enough to help them sail into profit in the face of high crude prices, according to analysts.
The National Development and Reform Commission (NDRC) has raised petrol prices 6.2 per cent to 8,580 yuan (HK$10,194) a tonne, diesel 5.5 per cent to 7,730 yuan and kerosene 7.9 per cent to 6,840 yuan, effective from yesterday.
The price increase will complicate the uphill battle against inflation. But the NDRC, the nation's top economic planner, said the move was necessary to prevent supply shortage and curb excessive use of oil as it expected global crude oil prices to remain high.
Drivers felt the impact yesterday when Sinopec raised the price of petrol at the pump. In Shenzhen, it increased the price of higher grade unleaded petrol to 8.65 yuan a litre, up from 8.10 yuan. This meant it cost an extra 30 yuan to fill a large family car, like a Ford Mondeo or Toyota Camry.
International crude prices have risen almost 15 per cent since Beijing last increased fuel prices on February 20 as conflicts in Africa and the Middle East have raised concerns about possible supply shocks.
Imports made up 55 per cent of the mainland's oil consumption last year, up from 53 per cent in 2009. During the China Development Forum two weeks ago, Premier Wen Jiabao said the country needed to improve its oil-pricing mechanism and make it consistent with international practice.
Jim Tang, an analyst with Shenyin and Wanguo Securities, said: 'The price increase was needed, but refiners' margins will still be under pressure.'
Analysts at Credit Suisse forecast the increase will help synthetic refining margins from negative to positive for April, but the April margins would still be 70 per cent lower than the US$5 a barrel average margin in the first quarter.
Guan Bin, an analyst with China Investment Capital Corp (CICC), said: 'We estimate refineries may break even or turn a small profit in the first quarter compared with the substantial losses the market expects as Chinese refiners' crude cost today is the average spot price about two months ago.
'Going into May, domestic refineries will likely face mounting cost pressure as high-cost crude oil starts to be processed. By then another increase is likely.'
He predicted that petrol and kerosene prices may rise substantially but the increase for diesel could be smaller.
Mainland airlines are expected to suffer as it is unclear if Beijing will allow them to pass the increased cost to consumers.
It costs this much extra, in yuan, to fill a family sedan after yesterday's petrol price rise: 30 yuan