China Raises Diesel, Gasoline Prices in Boost to Oil Refiners

(Bloomberg) — China, the world’s second-biggest energy consumer, increased fuel prices by as much as 8 percent today, allowing the nation’s refiners to pass on climbing crude oil costs.

Prices charged by refiners to wholesalers for gasoline and diesel rose by 400 yuan ($58.57) a metric ton, the National Development and Reform Commission, China’s economic planning agency, said on its Web site late yesterday.

China Petroleum & Chemical Corp., or Sinopec, the nation’s biggest refiner, said on May 22 it will lose money turning oil into fuels should crude trade above $60 a barrel and the government prevent it from increasing prices. Crude oil climbed above $66 a barrel to a six-month high on May 29, capping its biggest monthly gain in a decade.

“The price increase is positive news for Sinopec,” said Qiu Xiaofeng, a Shanghai-based analyst at China Merchants Securities Ltd.

The ceiling for retail prices will increase by the same amount. The previous price charged by refiners for gasoline was 5,730 yuan. For diesel, it was 4,990 yuan.

Inflation in the world’s third-biggest economy fell for the third straight month in April, giving the government more room to raise prices. Consumer prices fell 1.5 percent in April from a year earlier.

Gasoline and diesel are used to power trucks, cars and small generators in China. The government controls prices under a mechanism introduced in December that takes into account crude-oil costs, taxes and a profit for refiners.

Trucks, Cars, Generators

China may change fuel prices when crude-oil costs change more than 4 percent over 22 straight working days, the National Development and Reform Commission said on May 8.

“This is a hard decision for the government,” Qiu said, adding that while policy makers want to keep domestic prices in line with international oil costs, they also are “worried about the impact that the price increase may have on the economy.”

The government raised fuel prices by as much as 5 percent on March 25 to reflect movements in global crude prices.

The latest increase was smaller than a Shanghai research agency, CBI China Co., and the Guangdong Oil & Gas Association had predicted. On May 7, they projected that prices might rise by 520 yuan a metric ton for gasoline and 500 yuan a ton for diesel.

Profit at Sinopec fell 47 percent last year before the pricing changes were introduced and because it was unable to pass on soaring oil costs to customers. The company’s share price has declined 23 percent in the past year, matching the drop in the Shanghai Composite Index.

$60 a Barrel

PetroChina Co., the nation’s second-biggest refiner, posted a fourfold increase in oil-processing losses last year. Oil reached a record $147.27 a barrel in July 2008.

Crude oil above $60 a barrel puts pressure on Chinese refiners, Gordon Kwan, the head of energy research at Mirae Asset Securities in Hong Kong, said in an e-mail on May 29. Every $1 increase in the oil price will require the government to hand out subsidies of about $7 million a day, he wrote.

China’s gross domestic product expanded 6.1 percent in the first quarter, the slowest pace in almost a decade, after exports collapsed because of the global recession.

Signs of a fledgling expansion prompted by a 4 trillion yuan ($586 billion) stimulus package have included gains in industrial output.

Production growth may accelerate to 8 percent this quarter and exceed 10 percent for the second half, the Ministry of Industry and Information Technology said in May. That compares with a 7.3 percent gain in April and 5.1 percent growth in the first quarter.

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