동향정보

China fuel price hike only slows refiners' bleeding

등록자 :: admin_neae
작성일 :: 2007-11-02
조회 :: 312

Reuters,Thu Nov 1, 2007

China's unexpected fuel price rises on Thursday were a tonic for loss-making refineries but it was not enough to put their operations back in profit, analysts said.

China raised the prices after fuel shortages spread across the country, forcing authorities to introduce rationing in the worst areas. Industry experts said refiners had undersupplied the market because low state prices had forced them to bear huge losses, while crude oil prices were approaching an all-time high.

For fuel suppliers, led by top Asian refiner Sinopec (0386.HK: Quote, Profile, Research), the price hike will slow the bleeding but -- if crude oil prices say high -- they will remain in the red.

"Refiners will only lose less," said Na Liu, a China commodities analyst at Scotia Capital.

"Without the hike, on average, Chinese refiners need crude to be below US$70 to break even on operating margin. With the hike, Chinese refiners need crude to be below US$80 to break even."

U.S. crude oil (CLc1: Quote, Profile, Research) rose above $95 a barrel in late trading on Wednesday and traders have increased their bets that it will soon hit a record $100 per barrel.

Crude oil's rise has left Sinopec facing deeper and deeper losses from refining and some analysts had predicted it would receive a subsidy for the third year running to compensate it.

Others expected Beijing to force it to accept losses, although that could have compromised its aggressive expansion plans. Keeping fuel prices low also encourages people to smuggle cheap fuel out of the country or to sell on the black market at non-state prices.

China's National Development and Reform Commission said in an overnight announcement that it was boosting prices for gasoline and diesel by 9 and 10 percent, respectively, and was planning to revise China's "seriously low" natural gas price.

The price rise was the first increase in 17 months.

Sinopec's shares jumped 10 percent, while PetroChina (0857.HK: Quote, Profile, Research), Asia's top oil and gas producer and the country's second-largest refiner, surged more than 4 percent to all-time high of HK$20.25.

"Despite the price increase, we estimate domestic refining margins would still be below break-even in November. If crude oil prices stay around $90 per barrel, margins should be -$3 to -$5 per barrel in December," Goldman Sachs analyst Kelvin Koh wrote.

"Unless crude oil prices fall to the low $80s, the NDRC would likely need to increase prices by another 15 to 20 percent in early 2008 if it wants to bring margins to above break-even levels."

Citigroup analyst Graham Cunningham thought the market was currently not valuing Sinopec's refining division appropriately due to losses, and said Sinopec was the top pick in the China oil and gas sector.

"While the government took action earlier than expected, today's news reinforces our view that small independent refiners, which account for about 12 to 19 percent of China's gasoline and diesel production, limit Sinopec's refining downside potential," he wrote in a report.

Sinopec's Chief Financial Officer Dai Houliang said this week the company was under increasing pressure to secure supplies for the market as some independent service stations had stopped selling fuel.

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