December 30th, 2008 | www.chinamining.org China mulls on new product oil pricing system to ensure profit margin of oil refiners
China will adopt new pricing scheme of product oil as of January 1, 2009, which will secure the profit margin of refining enterprises, said Jiang Hao with investor relations department of Sinopec.
“The National Development and Reform Commission (NDRC) will employ different pricing modes of product oil in response to various spectrum of international prices of crude oil,”said Jiang.
NDRC will set the prices of domestic product oil based on prices of Brent Crude, Dubai Crude and Minas Crude plus domestic average processing cost and reasonable profit, when international crude oil prices are below 80 U.S. dollars per barrel.
When international oil prices range from 80 U.S. dollars per barrel to 130 U.S. dollars per barrel, NDRC will lower profit margin of oil refining.
In addition, NDRC will adopt another pricing system for domestic product oil when international oil prices exceeds 130 U.S. dollars each barrel.
Chinese refining companies will thus shake off continuous losses with the execution of above scheme, according to Jiang.
One source with Sinopec said that this pricing scheme comes from one draft plan of NDRC and is still in the process of soliciting opinions.
“The new pricing system will ensure the profit of refining sector in spite of lower gross profit margin,” said Deng Yong, analyst with Haitong Securities.
Under current pricing system, Sinopec (600028.SH; 0386.HK; SNP.NYSE) could secure a five-percent profit margin in its refining sector when international oil prices go below 50 U.S. dollars per barrel, according to Li Chen, analyst with Guosen Securities.
Nevertheless, Sinopec will nearly have no profit when oil price fluctuating between 70-80 U.S. dollars per barrel and suffer losses when oil prices topping 80 U.S. dollars per barrel.
Earlier, Su Shulin, general manager of Sinopec, said that the refining sector of Sinopec would become a profit maker in 2009.