China to lift fuel prices, but less than market rise

China will increase gasoline and diesel prices by 300 yuan ($43.92) a metric ton effective Wednesday, its sixth fuel-price adjustment this year, the National Development and Reform Commission said.

This equals an increase of about 4% to 5% over current average gasoline and diesel retail ceiling benchmarks of 7,310 yuan and 6,570 yuan a ton, according to Dow Jones Newswires calculations. The increase is far less than the 12% rise seen in the NDRC's benchmark pricing basket.

China also will raise the benchmark ex-factory price of No. 3 jet kerosene by 300 yuan per ton to 5,070 yuan per ton from Wednesday, the NDRC said in a statement on its Web site Tuesday.

The price increases come despite increasing concerns about inflation voiced by the NDRC in a statement last week. Such concerns may help explain why the increases were at the low end of analysts' expectations. China's fuel-pricing system introduced at the start of this year links domestic rates to changes in international crude prices.

Increases in local fuel retail prices would help the country's main refiners, including China Petroleum & Chemical Corp. and PetroChina Co., because they would demonstrate the government's commitment to a fuel-pricing mechanism that guarantees profit margins for the refiners, said Qiu Xiaofeng, an oil analyst with China Merchants Securities.

Such a commitment would be even more positive for refiners than the actual $3 to $4 a barrel expansion in refining margins, he said.

But more costly auto fuel may also curb demand at a time when fuel stocks held by the two oil giants have remained quite high, analysts said.

Under the oil-product pricing mechanism adopted at the beginning of the year, the window for the fuel-price adjustments opened last Wednesday, 22 working days after the last price adjustment on July 29. Domestic fuel prices may be adjusted when the moving average of a basket of international crude grades changes by more than 4% over a period of 22 working days. The crude basket includes ICE Brent, the Middle East's Dubai and Indonesia's Cinta. Since July 29, that basket has risen 12%.

In a statement last Thursday, the agency said it was ordering local pricing bureaus to stabilize key commodity prices in the lead-up to the country's 60th National Day celebrations in early October, and added that they should be "cautious" in implementing any price rises.