Sinopec, PetroChina Facing Processing Losses on Price Cut
China Petroleum & Chemical Corp. (600028) and PetroChina Co., the nation’s biggest oil refiners, face more losses from processing crude after the government cut fuel prices for the first time since October. Their shares fell.
The maximum at which gasoline can be sold to motorists is reduced by 330 yuan ($52) a metric ton and by 310 yuan for diesel starting today, the National Development and Reform Commission said in a statement on its website yesterday. The pump price of 90-RON, China III gasoline in Beijing falls to 10,050 yuan a ton, or $4.46 a U.S. gallon, according to Bloomberg calculations from NDRC data. China III specification is similar to the Euro III fuel standard.
The cut, in a range of 3.2 percent to 3.5 percent depending on region, may increase financial pressure on China Petroleum, also known as Sinopec, and PetroChina. Sinopec had a 16-fold rise in its refining loss to 9.2 billion yuan in the first quarter 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.
“This will take their break-even crude cost to around $111 a barrel from $115,” Brynjar Eirik Bustnes, the regional head of oil and gas equity research at JPMorgan Chase & Co., said by telephone from Hong Kong. “Operating profit will still be slightly negative. They’re now processing somewhat expensive crude, but hopefully the cost will decline very quickly when they buy more and more cheaper crude.”
The 22-day moving average of Brent, Dubai and Cinta, the three crude grades tracked by the NDRC, the nation’s top economic planner, fell 4 percent as of May 9 from the last price adjustment on March 20, the agency said in a separate statement yesterday. That’s the level at which the government considers revising fuel tariffs under a pricing mechanism introduced in December 2008.
China, the world’s second-largest oil consumer, last cut prices in October and raised gasoline and diesel costs by 600 yuan a ton in March.
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 the official Xinhua News Agency April 26. The system will be implemented when global 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 oil, China Petrochemical Corp., the parent company of China Petroleum, said in its online newsletter March 28.
“China seems to be quick to cut prices but slow to raise them,” Gordon Kwan, the head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong, said in an e-mail. “This clearly suggests that the government still has lingering concerns on inflation and is not ready to give the oil companies free rein to set fuel prices any time soon.”
The NDRC delayed price adjustments last year to cushion the impact on inflation, which exceeded the government’s 4 percent annual target every month. Consumer prices rose 3.6 percent in March from a year earlier, after a 3.2 percent increase in February that was the smallest since June 2010.
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