China fuel prices hit trigger point for a cut, new scheme eyed

BEIJING, March 21 Thu Mar 21, 2013 5:46am GMT

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BEIJING, March 21 (Reuters) - China may consider cutting retail fuel prices as early as next week after a fall in benchmark crude prices hit a trigger point under the country's fuel pricing mechanism, data from an energy consultancy showed.

Any cut would come as the industry awaits an overhaul of China's current system, replacing it with a more market-based scheme that would allow refiners to respond more quickly to changes in world prices.

At present, an increase or fall in crude benchmarks by more than 4 percent over a 22-working-day period typically triggers a price rise or cut.

The 22-day moving average price of Brent, Dubai and Cinta on March 20 was 4.37 percent below the level when China last adjusted fuel prices, data from ICIS C1 Energy showed. (www.icis-china.com)

The government may only consider a cut next week, about a month after the last fuel adjustment on Feb. 25 when the prices of gasoline and diesel were raised about 3 percent.

China is working to revamp its fuel pricing system and the industry expects Beijing to launch a new scheme, possibly in the coming months, that would scrap the 4-percent trigger and allow refiners to adjust domestic prices more swiftly.

Such a move would boost refining margins and could help curb excessive fuel use.

The world's second-largest oil consumer imported about 58 percent of its crude requirements in 2012, and the proportion of imports is expected to rise as domestic demand increases.

Yu Xizhi, president of Maoming Petrochemical Corp, the second-largest plant of China's biggest refiner Sinopec , told Reuters last week that Beijing may shorten the fuel price review period to five working days.

"Scrapping the four percent threshold for revision will reduce speculation. The government will adjust fuel prices every five working days," Yu said, adding that the new scheme would still include a guaranteed profit margin for refiners.

China raised and lowered fuel prices four times each last year, although the government sometimes delayed the adjustment due to worries about stoking inflation.

Yu said China could have raised fuel prices by another $12 a barrel last year to fully match changes in global crude prices.

"Sinopec's refining business should have enjoyed a big profit rather than sustaining a big loss if the government had raised fuel prices enough to match crude prices," he said.

Zhao Rifeng, president of Sinopec Jinling refinery in the eastern Jiangsu province, told Reuters this month that a new fuel pricing scheme would not completely liberalise prices.

"The gap between current fuel prices and liberalised prices is big. Entirely liberalised fuel prices means consumers will bear more fuel cost," he said. (Reporting by Judy Hua and Chen Aizhu; Editing by Richard Pullin)

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