China repeats to link fuel prices with global markets

BEIJING - China's top energy official recently said that Chinese domestic fuel prices will move in line with international markets, repeating an official line but stopping short of commenting on Beijing's next oil price move.

"China is in a transition from (a) state-controlled pricing mechanism towards market pricing. Even after the June 19 price hike, our refined fuel prices are still lagging behind global markets," Zhang Guobao, head of the newly established National Energy Administration, told a news conference on Monday. "The overall trend for our energy price reform will be market oriented."

Beijing raised its retail gasoline and diesel prices by 17-18 per cent in June, the first increase in 8 months, following months of spreading fuel rationing as refiners cut production to trim deepening losses incurred by record crude costs.

Mr Zhang said supply situations have since improved and gasoline in particular has seen some surplus in supply.

But he declined to comment directly on whether another price hike is in the pipeline after the Beijing Olympic games which end this weekend. Industry watchers have speculated that Beijing could take advantage of easing inflation to raise fuel prices again in a bid to curb fuel demand.

"We will be monitoring the domestic economic situations as well as global oil prices," Mr Zhang said, noting international prices have fallen dramatically to $US114 ($A130.7) on Monday from the peak above $US147 a barrel a month ago.

He also stressed that the government will take a series of measures to ease coal shortages, a key factor behind this summer's spreading supply crisis that industry sources said have so far forced many big metal firms to cut production.

Surging coal prices, insufficient coal supply and state-capped electricity tariffs have led to lower operation hours of thermal plants, Mr Zhang said. In the first half of this year, average operating hours by coal-fired plants dropped by about 50 hours versus a year ago, on top of a 133-hour cut last year versus 2006, Mr Zhang said.