Bloomberg News

China May Raise Fuel Prices This Week as Crude Costs Soar

March 13, 2012

China may raise gasoline and diesel prices this week after parliamentary meetings end, following an increase in global crude prices beyond the state-set threshold that triggers adjustments.

Prices may increase by as much as 400 yuan ($63.25) a metric ton, Liao Kaishun, an analyst with C1 Energy, and Yao Daming, head of the oil-product department at the Guangdong Oil & Gas Association, said separately by telephone from Guangzhou today. The country raised fuel prices by 300 yuan a ton on Feb. 8, the first increase in 10 months.

The government considers changing fuel tariffs when the 22- day moving average of Brent, Dubai and Cinta increases more than 4 percent from the last revision, according to a pricing mechanism introduced in December 2008. That average has risen 8.6 percent as of yesterday, according to Bloomberg calculations that assume equal weighting of the three grades.

“I feel the government won’t delay price increases this time,” Yao said. “It doesn’t have a good reason to.”

The annual National People’s Congress, attended by China’s decision-makers and representatives of the citizenry, will end on March 14. The meeting started March 5.

Delaying Increases

China delayed price adjustments last year to cushion the impact on inflation, which exceeded a 4 percent annual target set by the government every month throughout the year. Consumer price growth has since slowed to 3.2 percent in February, according to official data.

Fuel tariffs rose a net total of 550 yuan a ton in 2011, even though China’s fuel-pricing formula indicated they should have gained 1,500 yuan, the National Development and Reform Commission, the top economic planning agency, said Feb. 7.

China set a 2012 target for inflation that’s higher than economists’ forecasts, which leaves room for the government to “push forward energy-price reform,” Li Wei, a Shanghai-based economist for Standard Chartered Plc, said March 5.

The government is planning a new fuel pricing system that tracks crude costs more closely. Changes will involve shortening the pricing cycle from 22 days and switching some grades from the crude-assessment basket, the NDRC said Feb. 7.

’No Window’

Losses from processing crude at PetroChina Co., the country’s second-biggest refiner, are still widening and “there’s no window to implement the new pricing mechanism yet,” according to Chairman Jiang Jiemin on March 5.

“I believe the next increase will be in April, not March, as it’s too close to the agricultural planting season,” Gordon Kwan, Hong Kong-based head of regional oil and gas research at Mirae Asset Securities Ltd., said in an e-mail. “High diesel prices could irk the farmers.”

China’s spring planting season typically begins in March. The world’s most populous country had 656.56 million rural dwellers at the end of 2011, according to government statistics, more than double the U.S. population.

“In previous adjustments, we will hear a lot of chatter before the announcement but this time we haven’t heard anything yet,” Jay Chi, chief analyst at Guangzhou Twinace Petroleum & Chemical Corp., which sells feedstock to independent refiners, said by telephone from Guangzhou.

To contact Bloomberg News staff for this story: Jing Yang in Shanghai at jyang251@bloomberg.net; Chua Baizhen in Beijing at bchua14@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net


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