Chinese oil price shake-up ‘milestone for energy trade’

Updated 27 March 2013

Chinese oil price shake-up ‘milestone for energy trade’

BEIJING: China will start a more flexible system for pricing domestic fuel from today, the first major revamp for four years, to help avoid shortages and tame consumption.
The new scheme should reverse years of losses for China’s oil refiners, analysts said, by increasing the link with world crude prices and scrapping a rigid formula for altering prices for oil products such as gasoline and diesel.
“This is a big milestone for the energy industry and big win for the refiners as the new scheme should lead to more market-driven prices which will lead to improved profitability in the sector,” said Gordon Kwan, head of energy research at Mirae Aseet Securities in Hong Kong.
State oil companies like Sinopec Corp. and PetroChina have suffered losses at their refining segments as domestic fuel prices often lagged the gains in costs of crude oil.
Top refiner Sinopec should benefit most from the reform and should see the operating margin for its refining improve to 10-12 yuan ($1.6-$1.9) per barrel from 7 yuan in 2012, according to a Bernstein Research note.
The government also wants to use the more market-linked scheme to curb wasteful fuel consumptions, as China, the world’s second-largest oil user, is set to double its fuel use by 2030.
“After the adjustments the mechanism has taken a further step toward market liberalization, and will more flexibly reflect changes in the international market and help guarantee domestic market supplies,” China’s top economic planner, the National Development & Planning Commission, said on its website.
Under the new scheme, prices will be changed every 10 working days versus the previous window of 22, it added.
An automatic change to fuel prices if crude prices move more than 4 percent, will also be scrapped.
The basket of reference crude oils would also be altered, the agency said, without elaborating.
The commission, however, gave scenarios under which the government may withhold or delay price adjustments — such as high domestic inflation or spikes in global oil prices over a short time frame. Also prices will not be changed if the resulting fuel price moves are less than 50 yuan per ton.
Farmers, public transport, taxis and other vulnerable users would continue to receive subsidies to cope with big price increases.
With effect from Wednesday, China will cut its retail ceiling for prices of diesel and gasoline.
Gasoline prices will be cut by 310 yuan ($ 49.91) per ton, while diesel prices will fall by 300 yuan per ton, or about 3.2 percent and 3.4 percent, respectively, from the last price change on February 25.


Israel cenbank’s Abir says buying corporate bonds to prevent layoffs

Updated 08 July 2020

Israel cenbank’s Abir says buying corporate bonds to prevent layoffs

JERUSALEM: The Bank of Israel’s decision to start buying corporate bonds should enable companies to issue debt and prevent further layoffs as a result of the coronavirus pandemic, deputy governor Andrew Abir said.
On Monday, the bank held its benchmark interest rate at 0.1 percent but said it would buy 15 billion shekels ($4 billion) of higher-rated corporate bonds in the secondary market.
“It’s not that the corporate bond market was not functioning or because spreads have widened dramatically, but rather the understanding that over the next 6-12 months, there’s going to be a need for issuance in that market,” Abir told Reuters.
The central bank began purchases on March 15 of up to 50 billion shekels of government bonds, which has helped reverse a spike in government and corporate yields.
The index of bonds issued by Israel’s 20 largest firms has gained 1.4 percent following the central bank’s announcement, following three weeks of declines.
Noting that more than 40 percent of corporate credit comes from the bond market, Abir said that fear of being frozen out the market could lead to cash hoarding and cost-cutting, including jobs.
“We want to prevent a situation where a company is having question marks in its ability to fund themselves (and) lays off another 1,000 workers.”
Unemployment is already more than 20 percent and could worsen after some COVID-19 restrictions were reimposed.
Abir said risks to the central bank’s scenario of a record six percent economic contraction in 2020 will be “to the downside” if the infection rate stays high.
Analysts are split over whether the central bank will lower its key rate to zero percent or negative. The Bank of Israel has indicated it is reluctant to do so.
“We still have more measures that we can do. QE can be increased. We haven’t run out of our policy options,” Abir said.