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China’s Refiners Face Biggest Fuel-Price Cut Since 2008

China Petroleum & Chemical Corp. (600028) and PetroChina Co. (857), the nation’s biggest refiners, face more losses from processing crude after the government cut fuel prices by the most since 2008 as global crude costs tumbled.

State-controlled retail gasoline prices fall by 530 yuan ($83) a metric ton and diesel by 510 yuan starting today, the National Development and Reform Commission, the nation’s top economic planner, said on its website yesterday. The cut is the steepest since the government’s current pricing system was introduced in December 2008.

A drop in fuel prices threatens to reduce revenue at PetroChina and China Petroleum, known as Sinopec, offsetting cheaper crude costs and extending processing losses that widened last quarter. Brent oil in London, a benchmark price tracked by the government, entered a so-called bear market on June 1 after sliding more than 20 percent from this year’s peak.

“Margins at the refiners are looking quite bad for the second quarter,” said Shi Yan, a Shanghai-based analyst at UOB- Kay Hian Ltd., who predicted prices would be lowered by 600 yuan a ton. “The government may want to help trim refiners’ oil- processing losses” by cutting fuel prices by less than expected, she said.

Sinopec had a 16-fold increase in its first-quarter refining loss to 9.2 billion yuan compared with a year earlier, the company said April 26. PetroChina said its operating loss from processing widened to 10.4 billion yuan in the three months from 6.1 billion yuan a year earlier.

Not Reflecting

A drop of 530 yuan a ton, or 24 cents a gallon, doesn’t fully reflect the decline in crude, according to calculations by C1 Energy, a Shanghai-based commodity researcher. It correctly reported the fuel-price changes on its website yesterday before official announcements. Rates should have fallen by as much as 620 yuan under government rules, it said.

The cut is equivalent to a 5.5 percent drop in average retail gasoline prices, according to government data. Brent fell 11 percent to close at $99.93 a barrel on June 7 compared with May 10, when Chinese fuel prices were last adjusted.

The maximum price for 90-RON, Euro III-equivalent gasoline at the pump in Beijing falls to 9,520 yuan a ton, or $4.27 a gallon, data from the NDRC show.

Fuel Pricing

Sinopec rose 0.7 percent to HK$7.07 in Hong Kong yesterday and PetroChina gained 0.8 percent to HK$10.12. The benchmark Hang Seng index fell 0.9 percent.

The NDRC considers adjusting fuel rates when the 22-day moving average of Brent, Dubai and Indonesia’s Cinta crude changes more than 4 percent from the previous revision. Yesterday was the 22nd working day after the last adjustment on May 10, the official Xinhua News Agency said June 6.

The nation has a plan to revise its fuel-pricing mechanism and is waiting for an “appropriate time” to implement it, Zhou Wangjun, deputy director of the pricing department at the NDRC, said in a webcast by Xinhua on April 26. The system will be implemented when oil prices are “relatively low,” Zhou said.

China will let oil companies set fuel prices according to guideline rates posted by the government as part of planned changes, Xinhua reported March 28, citing Peng Sen, a former vice chairman at the NDRC.

The new system may also shorten the pricing cycle to 10 days from 22 days and replace Indonesia’s Cinta with New York- traded West Texas Intermediate, China Petrochemical Corp., the parent company of China Petroleum, said in its online newsletter March 28.

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

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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