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Fuel prices raised by 6.5-7%

Fuel prices raised by 6.5-7%

Updated: 2012-03-20 07:36

By Zhou Yan (China Daily)

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The formula allowed for a price hike of 700 yuan a metric ton this time around, but the government limited the increase in consideration of affordability, said the NDRC, China's top economic planner.

"The increase is much higher than the market consensus of about 300 yuan. We reckon it is due to easing domestic inflation and weaker demand on the backdrop of an economic slowdown from previous years," said Wang Jintao, an analyst at chem365.net, an online information provider for the petrochemical industry.

The consumer price index, a main inflation indicator, rose 3.2 percent year-on-year in February, a 20-month low.

China's foreign oil dependency jumped to 56 percent in 2011 from 30 percent in 2000. That's not a sustainable trend in light of the country's long-term demand for oil, so China is using the pricing system to curb excessively rapid increases in oil use, the NDRC said.

Central government subsidies to the agriculture, fishery, forestry, urban public transportation and taxi industries will be provided to offset the price hikes, the authority said.

The frequency of price adjustments - two times in as many months this year - is much more than in previous years. The government raised prices only three times last year.

The change of frequency may be a means for the NDRC to test the public response to increased price volatility, laying a foundation for further reforms, said Cindy Liang, a senior analyst at the energy information provider Platts.

The latest hike could also lift domestic refineries out of the red. These facilities were losing about 600 yuan a ton under the previous fuel prices, Liang said.

China National Petroleum Corp, the country's biggest energy company, lost 50 billion yuan in its refining division last year, Chairman Jiang Jiemin said, adding that the losses would increase this year.

"What is critical now is for the government to provide more clarity into the current scheme, which can give us leeway to adjust production and reduce losses," said Rong Guangdao, chairman of Sinopec Shanghai Petrochemical Co, which has an annual refining capacity of 12 million tons.

There's widespread market speculation that China will reduce the price-adjustment reference period to 10 days, from 22 days, to better reflect volatile global oil prices.

The NDRC hasn't said when it might further reform the pricing system.

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