Bloomberg News

Sinopec, PetroChina Rise on Speculation of Pricing Changes

November 07, 2011

(Closing shares.)

Nov. 4 (Bloomberg) -- China Petroleum and Chemical Corp., Asia’s biggest refiner, rose the most in almost three years in Hong Kong trading on speculation the state may allow fuel suppliers including PetroChina Co. to adjust prices on their own.

Sinopec, as China Petroleum is known, gained 8.3 percent, the largest increase since Dec. 8, 2008, to HK$7.92 at the close. PetroChina climbed 3.9 percent, while Cnooc Ltd., whose parent operates a refinery, advanced 5.1 percent. The benchmark Hang Seng Index climbed 3.1 percent.

China, which controls fuel prices to curb inflation, may permit refiners to make “appropriate” changes, China Securities Journal reported, citing an unidentified person. This would mark a further move toward market-oriented pricing after China introduced a system in 2008 that linked government- mandated changes to swings in benchmark crude prices.

“Oil companies will for the first time be allowed to adjust prices by themselves, which could certainly help them cut refining losses,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “The new mechanism is a step forward from the old one, providing more certainty and transparency to the market and oil companies.”

The pricing mechanism should provide a “reasonable profit margin,” Petrochina President Zhou Jiping said Aug. 26. China may increase the frequency of fuel-price adjustments and change the crude benchmarks that it monitors, the NDRC said on Oct. 8, without being more specific.

Huang Wensheng, Sinopec’s Beijing-based spokesman, declined to comment on the China Securities report. Mao Zefeng, PetroChina’s Beijing-based spokesman, didn’t answer two calls to his mobile phone. Two phone calls to the NDRC’s news department went unanswered.

Refining Losses

Losses from refining amounted to 41.5 billion yuan ($6.5 billion) for PetroChina in the first nine months, and 23.1 billion yuan for Sinopec. PetroChina said Oct. 21 its refining loss may widen to 50 billion yuan for the full year.

China raised fuel prices by about 10 percent in the first nine months in two adjustments, while crude increased 23 percent in New York during the same period from a year earlier. Futures traded near a three-month high today as signs Europe will reach an agreement with Greece on its debt reduced concern that faltering global economic growth will limit fuel demand.

“Thanks to subsiding fears of the euro-debt crisis and rebounding oil prices, speculation of this new China fuel- pricing scheme will sustain today’s rally in the oil stocks,” said Gordon Kwan, Mirae Asset Securities Ltd.’s head of regional energy research in Hong Kong.

--Editors: Ryan Woo, Indranil Ghosh.

To contact the reporter on this story: Guo Aibing in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Ryan Woo at rwoo5@bloomberg.net.


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