High Crude Oil Price
Artificially low refined oil price
Subdued demand from Downstream Industries
As the crude oil price breaks its record highs and the price of refined oil is strictly controlled by the government, the Q3 2007 result of SHI was adversely hurt. In Q3 2007, the net loss attributable to equity shareholders of the Company is -RMB94,722,000, increasing by RMB61982000 from -RMB32,740,000 in Q3 2006. Since November this year, the government has increased the price of gasoline, diesel and kerosene by 500RMB/ton. As a result, the average retail prices for gasoline and diesel have gone up from CNY5480/ton and CNY5020/ton to CNY5980/ton and CNY5520/ton. After adjusting for an 8% of floating range, the average retail prices for gasoline and diesel are CNY6460/ton and CNY5960/ton. This is equivalent to 0.4CNY/Liter for gasoline and 0.46CNY/Liter for diesel. As one barrel equals to around 159 liters, the prices of gasoline and diesel are CNY63.6/barrel and CNY73.14/barrel。We expect that if the crude oil price remains at the current high level for a prolonged period or even increases further, the government may inflate refined oil prices again, especially when CPI is controlled next year
In October, due to increased input costs of production, 57.6% of petrochemical products increased their prices, compared with 53.7% in September. As a result, the growth in export of those products has slowed down. In October, export value of the whole industry was CNY31.55billion, rising 21.09% from the same period in 2006. However, this rise is lower by 4.4% than the accumulative amount of 25.5% for the first half of the year 2007. In response to more expensive production inputs, downstream industries have reduced their production levels. The weaker demand is expected to offset the benefits of rising prices of petrochemical products.
The expected share reform is positively taken by the market, since a market-controlled corporate is expected to a have stronger corporate governance than a government-controlled corporate. Such reform will have long-term effects.
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