Price cut causes no havoc
(LIANG YU)
08/27/2001
The local gasoline market has not seen any signs of the price war that was predicted by the media after the country's two largest oil companies cut the retail price of gasoline in Shanghai last week.Analysts now tend to see the move as a signal that the two giants, China National Petroleum Corp (CNPC) and China Petrochemical Corp (Sinopec Group), are trying to secure their market position in the face of looming pressure from foreign players as accession to the World Trade Organization (WTO) approaches. CNPC's Shanghai branch last Sunday dropped the price of No 90 lead-free gasoline at its gas pumps by 8.5 per cent to 2.36 yuan ($0.28) a liter. Its chief competitor, Sinopec, marked down prices by 6.59 per cent to 2.41 yuan ($0.29). Calm market The move came after the central government lowered the monthly benchmark price for refined oil products in response to the drop in price on the global market. The two State-owned companies, which control half of the domestic market, are allowed to set their retail price by raising or lowering the benchmark price by 5 per cent. Both parties agreed on pump prices in the past, and some believe they are now engaged in a price war in the retail market for refined oil. Yet the market has been calm since the cut. "We haven't noticed a significant improvement in our business so far," said an executive of a CNPC outlet near Jing'an Temple. She added that gasoline sales have increased only slightly, by several hundred litres a day, an insignificant change to its usual 20 tons in daily sales. The price cut seems to have had little influence on most drivers, because of the minute difference in the rivals' prices, she said. Some private car owners claim they would not seek out a CNPC outlet unless it was on their daily route. Taxi drivers say the price cut is not a big concern, as many local cabs have shifted to cheaper, environmentally friendly liquefied petroleum gas (LPG). The cost of LPG is 1.83 yuan ($0.22) per litre. Strategic alliance The two oil giants seem to have no intention of undercutting each other. "We take the gasoline price differential as a normal thing, and we insist on the improvement of our service quality as the best measure to sharpen our competitive edge," said Liu Qingsen, an official of Sinopec's Shanghai operation. CNPC introduced a price different from Sinopec because of its currently limited operation scale in the city, said Meng Peiquan, an executive with CNPC's Shanghai branch. CNPC did not enter the local market until 1999, and now it has about 100 outlets citywide while Sinopec operates some 530 gas stations in Shanghai. The price cut in the city is based on the State's benchmark price and on local demand, and it has nothing to do with a price war, said a Beijing-based spokesman for Sinopec. Also, after the WTO entry, the country is expected to gradually loosen its control over the retail and wholesale market of refined oil, which means an increasingly wide entrance for foreign companies. Instead of staging price wars, Sinopec and CNPC should concentrate on improving services and securing market position in order to prepare for foreign competition, analysts said.
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