Oil firms, utilities emerge big gainers

By Richard Fu  |   2008-6-21  |     NEWSPAPER EDITION

OIL firms and power utilities are the biggest gainers of the latest rise in fuel and electricity prices that have been frozen for a long time.

Although China's pump prices are still below international levels, the rise in gasoline and diesel prices of up to 18 percent, which became effective yesterday, could significantly improve refining margins in Sinopec Corp and PetroChina Co and help lift their earnings, analysts said.

The two dominant refiners have reported a sharp profit decline in the first quarter due to government price controls that bar them from passing on record crude costs to consumers. Sinopec's earnings per share stood at 0.077 yuan in the first quarter and PetroChina's was at 0.14 yuan based on Chinese accounting standards.

CITIC Securities analyst Yin Xiaodong said the latest hike, the first in 8 months, could offset a rise of US$15 to US$17 per barrel in global crude prices, and could add 0.42 yuan in per share earnings to Sinopec and 0.15 yuan to PetroChina in the second half based on last year's refining throughput. Wang Jing of Orient Securities estimates the price increase would add 0.37 yuan to Sinopec's earnings this year and 0.17 yuan to PetroChina, saying "operations of both would again be under huge pressure if crude keeps soaring In the rest of the year, while this may also trigger further price hikes."

China International Capital Corp said there is still an upward room of 60 percent for China to raise fuel prices to get in line with international levels and China should raise prices by another 30 percent to ensure normal margins for its refineries.

China will also raise retail power prices by an average 4.7 percent from July 1 and cap thermal coal prices by the end of the year. Utilities such as Huadian Power would gain as they have been hit by soaring coal prices.