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Remark on fuel tax fires up major refiners
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China Petroleum & Chemical Corp, Asia's largest refiner, rose the most in six months in Shanghai after a state researcher's comment on fuel taxes prompted speculation China will speed up changes to energy pricing.

Sinopec, as China Petroleum is known, jumped by the 10-percent daily trading limit, the biggest increase since May 21, to 8.37 yuan (US$1.23). Its Hong Kong stock rose 2.8 percent to HK$4.41 (57 US cents).

China, the world's second-largest energy user, will introduce a retail fuel tax "soon," Han Wenke, the head of energy research at the National Development and Reform Commission, said yesterday. This is a good time to push for fuel-price reforms as local oil supplies have improved, Mu Hong, vice director of the commission, the country's top economic planner, said last week.

"The government's fuel tax comment sends a signal that fuel pricing reform will be accelerated, allowing room for bigger margins for oil refiners," Yin Xiaodong, an oil analyst with CITIC Securities Co, said by phone in an interview with Bloomberg News in Beijing yesterday.

The Chinese government may implement some form of market-based pricing for gasoline, diesel and kerosene before the end of the current "oil down cycle," Deutsche Bank AG analysts J. Clarke and Tony Lee said in a research note yesterday. Sinopec and PetroChina Co, the nation's second-biggest refiner, will benefit "significantly" under a free-market pricing regime, the analysts said.

Shares of PetroChina rose as much as 6 percent in Hong Kong trading to HK$5.95 and closed at HK$5.65. Its Shanghai shares jumped 7 percent to 11.91 yuan.

"If the government levies the new fuel tax, I believe it will keep it relatively low at the initial stage to avoid a negative impact on consumption," Zhang Guojun, an oil analyst with Ping'an Securities Co, said in the southern city of Shenzhen.

China controls fuel prices to limit their impact on inflation, curbing state refiners' ability to pass on rising crude costs to customers. Crude prices in New York hit a record in July. China raised fuel prices by as much as 25 percent in June. Sinopec has said the rise wasn't enough to offset higher raw material costs.

(Shanghai Daily November 20, 2008)

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