China, the world’s second-biggest oil consumer, reduced fuel prices for the third time since May after crude tumbled, easing costs for factories and motorists while threatening profit margins at refiners.
The maximum at which gasoline can be sold at the pump fell by 420 yuan ($66) a metric ton starting today and diesel slid by 400 yuan, the National Development and Reform Commission said in a statement on its website yesterday. The cuts represent a reduction of as much as 4.8 percent, according to Bloomberg calculations based on average retail rates across the country.
Falling oil costs have allowed China, which imports more than half its crude, to reduce fuel rates as its economy cools. The government may say this week that gross domestic product in the second quarter expanded at the slowest pace since 2009, according to a Bloomberg News survey of economists. The cuts are eroding margins at China Petroleum & Chemical Corp. (600028), or Sinopec, and PetroChina Co., the nation’s biggest crude processors, according to Sanford C. Bernstein & Co.
“The result of the third consecutive fuel-price cut in two months will be to push refining margins back into negative territory which is clearly not good for refiners,” Neil Beveridge, an oil and gas analyst at Bernstein in Hong Kong, said in a note e-mailed today. “Although Sinopec has underperformed since the first quarter and is now in deep value territory, we see no clear catalysts in the near term.”
Sinopec slid 1.2 percent in Hong Kong yesterday after the official Xinhua News Agency reported the price cut, without specifying the size. It fell 0.2 percent to HK$6.42 at 10:03 a.m. today and is down 21 percent this year. PetroChina dropped 1.6 percent to HK$9.34 and has fallen 3.4 percent in 2012. The benchmark Hang Seng index, down 0.6 percent, has gained 4.6 percent since Dec. 31.
The fuel-price reductions returned costs at the pump to levels last seen in December 2010. The ceiling for 90-RON, China III gasoline in Beijing fell to 9,100 yuan a ton, or $4.09 a U.S. gallon, according to the NDRC data. The China III specification is similar to the Euro III fuel standard. The NDRC, China’s top economic planner, also cut tariffs on May 10 and June 9.
Brent, a benchmark grade that China uses to gauge oil- processing costs, averaged $95.93 a barrel in June, the first time the mean price fell below $100 a barrel since January 2011, according to data compiled by Bloomberg. Futures for August were at $98.38 in London today and have slumped 23 percent since this year’s intraday peak on March 1.
Gasoline and diesel prices are set by the NDRC under a system that tracks the 22-day moving average of a basket of crudes comprising Brent, Dubai and Indonesia’s Cinta. The government may change fuel rates when the measure falls more than 4 percent from the last adjustment. The NDRC said yesterday the criteria for price changes were met on July 9.
The nation is waiting for an “appropriate time” to revise its price mechanism, Zhou Wangjun, the deputy director of the pricing department at the NDRC said in a webcast by Xinhua on April 26. The system will be implemented when global oil prices are “relatively low,” he said.
China’s economy may have expanded 7.7 percent in the second quarter from a year earlier, down from 8.1 percent in the prior three months, according to the median estimate in a Bloomberg News survey of economists before data due July 13. That would be the slowest pace of growth since the first three months of 2009.
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