China cuts fuel prices earlier than expected 
Friday, December 19, 2008 
 
    Taxi driver Qu waited patiently in the December night chill as a gas station boy changed the price tag, which indicated China's unified fuel price cut effective early Friday morning.

     The country slashed the benchmark prices for fuel from 6.37 yuan (0.93 U.S. dollar) per litre to 5.46 yuan starting Friday morning, which was earlier than the long-awaited government scheme on fuel taxation and pricing slated for Jan. 1 next year.

      "The price cut of 0.91 yuan per litre means a monthly saving of 900 yuan for a taxi driver," said Qu, waiting in Thursday's midnight dark for the clock to turn zero.

       The government distributed the news of the price cut via all major media and short messages to cell phone users on Thursday evening.

       Nevertheless, there was no queuing-up at the gas station in the early morning hour. The station boy said long queues appeared in previous price rises this year.

       The National Development and Reform Commission (NDRC) made it clear Thursday that domestic fuel prices would remain unchanged on Jan. 1, 2009, when the fuel tax is expected to kick in.

        This round of price cut was China's revamp of its oil pricing system to let it pegged with the global market.

         "The pricing would reflect the global market supply of oil resources and let the market play a fundamental role," said Zhao Jiarong, an official with the NDRC.

          "The latest cut would narrow the gap between wholesale and retail prices. Consumers would benefit from it," said Xu Kunlin, another NDRC official.

           Zhou Dadi, an energy researcher, said his calculation showed the factory gate fuel price would drop by 2,000 yuan per tonne and the pre-tax retail price would be down by 1.7 yuan per liter after the price cut.

          A fuel trader said there might be a hoard purchase before the fuel taxation effective on Jan. 1 next year.

          Bai Chongen, an economist from Tsinghua University, said the post-tax retail price would remain unchanged next year as fuel producers would lower the factory gate price again to offset the tax.

          But for fuel producers, the price cut reduced their sales profit. "It will have a short-term impact on our profit, but we expect the global prices to rise in future. This will secure the long-term profit," said Shu Zhaoxia, a researcher with Sinopec, Asia's largest refiner.

          Experts said the country's first fuel price cut in almost two years would help revitalize companies and factories eking out in a slowed-down economy.

          Among industry beneficiaries, the aviation sector would see an immediate effect because the benchmark prices for jet fuel was slashed by a bigger margin of more than 30 percent, or 2,400 yuan, to 5,050 yuan per tonne.

          An Air China spokesman said the cut would definitely boost the aviation industry as the drop was beyond airliners' expectation.

          A Guojin Securities analyst said based on the forecast 2009 jet fuel consumption of 11.47 million tonnes, the price cut would lead to a cost reduction of 27.5 billion yuan for the country's aviation industry.