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New Pricing System for Oil Products in China
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China's rising number of motorists could be in line for sharp petrol price rises under a new state pricing scheme, dubbed the "crude price plus cost" method, for oil products.

Han Yongwen, secretary-general of the National Development and Reform Commission, said on Tuesday the commission, the nation's top economic planning agency, considered the new pricing system would help cut heavy losses in the oil processing and petrochemical industries.

Industry observers believe the new system will translate into domestic oil prices being closely linked to those on international markets, with consumers having to bear bigger-margin price rises on imported oil.

Han said the "crude price plus cost" method was based on the Brent, Dubai and Minas crude oil prices, taking into account processing costs and possible opportunities for enterprises to profit.

A senior official with a Chinese oil processing company, preparing to launch an IPO (initial public offering) in Britain, said, "The news will send a signal to investment banks that our company will have a stable profitability. This will help secure a higher IPO price for the company."

China's rising car ownership has fueled demand for oil products. However oil processors have failed to profit from the brisk sales, as prices of fuel oil are under rigid state control and international crude oil prices have been generally rising.

Sinopec, China's leading oil processing and petrochemical enterprise, relied on imports for three quarters of its total crude processed annually. It was highly sensitive to price hikes on international crude markets. It often bought crude at a high price, but sold oil products at a low price, as prescribed by the state to stabilize the domestic market and safeguard consumers' interests.

Though the state subsidized the company substantially in 2005 and 2006, the move failed to stem losses for the oil refiner and petrochemicals producer.

Industry observers said China needed to build more oil processing facilities to meet mounting demand.

(Xinhua News Agency January 31, 2007)

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