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 China Mulls Major Reforms To Refined Oil Pricing Mechanism
CreateTime:2011-11-04     Source:CapitalVue Editor:houhaizhen
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November 4 -- The big three domestic oil refiners, PetroChina (601857.SH, 0857.HK), Sinopec (600028.SH, 0386.HK), and China Oilfield Services (RCode:601808:, 2883.HK), may be allowed to adjust the prices of their refined oil products under a new pricing mechanism being considered by the National Development and Reform Commission (NDRC), reports China Securities Journal, citing an informed source.

The informed source said the new pricing system may reduce the price adjustment cycle from 22 working days to 10 working days.

The source added that the price of WTI (West Texas Intermediate) crude may be adopted as one of the references for the pricing mechanism.

When the conditions for price adjustments are met, the big three companies must lower their prices at once. In cases of price increases, the three companies may choose to hike the prices by a lower percentage than the maximum allowed by the NDRC.

Insiders from the oil refining industry said PetroChina and Sinopec will benefit the most from the new pricing mechanism. The two companies had incurred losses from their refining business due to the lag in refined oil price adjustments.

A China Minzu Securities analyst said the valuations of overseas prospecting companies are about 15 times earnings, while that of refiners and producers of chemicals are at least 13 times earnings.

The valuations of PetroChina and Sinopec through November 3 were just 12-13 times earnings, and 8-9 times earnings, respectively. The main reason for the lower valuations are the losses both companies incurr from their refining businesses.

A vice director at the NDRC, Peng Sen, said earlier that growth in the consumer price index in the last two months of 2011 may be controlled under five percent.

The market is expecting the new refined oil pricing mechanism to take effect by the end of 2011, according to the report.

Shares of Sinopec were up 2.91 percent to trade at 7.43 yuan per share at 14:58 today.

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