Aug. 31 (Bloomberg) -- PetroChina Co. and China Petroleum & Chemical Corp., the nation’s biggest oil refiners, slumped on concern the government will keep fuel prices unchanged to support the economy as crude climbs, squeezing refining margins.

China Petroleum, also known as Sinopec, dropped by the 10 percent trading limit in Shanghai to 11.13 yuan. The last time the stock fell by 10 percent was in June 2008. PetroChina declined 6.7 percent to 12.80 yuan. The CSI 300 Energy Index of 22 Chinese energy companies fell 9.1 percent, the biggest drop in two years.

China will reduce the number of times it adjusts fuel prices “at this critical juncture” as changes will add “uncertainty” to the economy, the Shanghai Securities News reported on Aug. 29. The National Development and Reform Commission, China’s top economic planner, denied the report after the share market closed today. There are no changes to the fuel pricing system introduced in December, it said.

“Investors are getting worried that the government is more wary about raising prices as the cost of crude rises and this will impact on Sinopec and also PetroChina,” Michael Yuk, an analyst at Sun Hung Kai Financial, said before the National Development and Reform Commission’s announcement.

PetroChina and Sinopec were the biggest contributors to losses on the Shanghai Composite Index, which slumped 6.7 percent, the most since June 2008.

Crude Oil

Crude oil has gained about 35 percent since December under a new mechanism that adjusts fuel prices in line with crude oil costs and promises a profit for refiners. China might increase gasoline and diesel prices on Aug. 26, industry Web site C1 Energy reported last week, citing unnamed officials at Sinopec and PetroChina.

Sinopec, supplier of 80 percent of China’s fuel, will incur a processing loss this month if the government didn’t raise prices, a company official said Aug. 24. Prices of gasoline and diesel have risen by as much as 25 percent under the new pricing system.

China’s economic recovery isn’t stable and authorities can’t be “blindly optimistic,” Premier Wen Jiabao said in comments published last week. A decline in external demand may continue for a longer time and excess capacity may restrain industrial growth, Wen was quoted as saying on the State Council’s Web site last week.

Fuel Price

China’s relaxation of price curbs helped Sinopec end four years of years of refining losses and prompted PetroChina to boost investment in oil processing.

Second-quarter net income at Sinopec, China’s biggest fuel producer, reached a record 22 billion yuan ($3.2 billion) and the company said Aug. 23 it expected nine-month earnings to rise more than 50 percent.

PetroChina’s operating profit at its refining unit reached an all-time high of 17.2 billion yuan in the first six months, the Beijing-based company said last week after announcing its earnings. PetroChina plans to ramp up output of crude oil and fuels and expects to acquire more overseas refineries after completing its purchase of Singapore Petroleum Co., President Zhou Jiping had said.

“I see little chance of the government raising gasoline and diesel prices this time,” Qiu Xiaofeng, an analyst with Shanghai-based China Merchants Securities Co., said by phone today. “They may wait until after the October National Day celebrations.”

Sinopec Shanghai

Sinopec Shanghai Petrochemical Co. is “worried” about the government’s commitment to the fuel-pricing mechanism, Chairman Rong Guangdao said at a media briefing in Hong Kong today.

“We hope the government will strictly stick to the fuel pricing mechanism,” Rong said. “Delaying the price hikes as promised will have a very negative impact, both on our company and the country’s economy.”

Sinopec Shanghai is “on the verge of refining losses” because of the current fuel prices and crude-oil costs, Chief Financial Officer Han Zhihao said at the briefing.

To contact the reporter on this story: John Duce in Hong Kong at OR Jduce1@bloomberg.net

Last Updated: August 31, 2009 06:21 EDT