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Higher domestic oil product prices in China

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by Elaine Frei

China announced Sunday that it has raised prices for its domestic oil products to make up losses created by the difference in prices between crude oil and oil products. China’s refineries lost a reported Rmb30 billion last year, and the lack of enthusiasm on the part of refiners to supply the domestic market due to low prices led to spot shortages last summer. The government had been reluctant to pass on the cost of the increasing use of imported oil due to the effect it would have on farmers and other groups that are dependent on the use of oil products.

Refinery gasoline prices were raised by Rmb300 ($37.36) per tonne, while diesel prices went up by Rmb250. These increases are said to be too small to completely cover the increase in prices of oil globally, but are still expected to give some help to domestic refiners such as Sinopec. Distributors’ margins, however, will decrease, as pump prices will only be allowed to rise by Rmb 250 per tonne for gasoline and by Rmb 150 per tonne for diesel.

At the same time as the price increases were announced, the Chinese government also said that new subsidies will be put in place for farmers, urban transport companies, some disadvantages groups, and public-good industries. No details on how or when the subsidies would be put into operation were announced, however.

In another move to help make up losses from imported oil, the Chinese government said last week that tariffs will be introduced on industrial fuels. Additionally, the tax on large cars went up from 8 percent to 20 percent.

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News posted: March 27, 2006

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