China suspends fuel price adjustments to curb demand, pollution

[HONG KONG] China suspended fuel price adjustments as the world's biggest energy consumer tries to curb demand growth and cut pollution to help improve air quality. Shares of the country's biggest energy producers surged.

Using fuel prices to balance the country's energy consumption is an important tool and the government has decided to use it now to curb petroleum consumption that has "increased too fast," National Development and Reform Commission, the country's top economic planner, said in a statement dated Dec 15. Automobile emissions are part of the reason for worsening air pollution, the NDRC said.

"It seems that the government won't cut prices until the pollution situation gets improved," said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai.

"Otherwise more people will buy and consume cheaper fuel to add to pollution." The decision has an immediate impact on China's refiners, as they would benefit from better margins, Neil Beveridge, a Hong Kong-based analyst at Sanford C Bernstein & Co, said by phone.

China Petroleum & Chemical Corp, Asia's biggest refiner, rose as much as 10 per cent to HK$4.82, the biggest intraday gain since February 2014.

PetroChina Co, the country's second- largest refiner, gained as much as 6.7 per cent to HK$5.39, the biggest rise in two months. Both companies fell to their lowest levels in at least six years earlier this week.

"The government's pledge not to cut fuel prices amid heavy pollution is helping refiners like Sinopec to maintain their profitability," said Mr Wei.

Fuel prices in China, which are set by the government, are adjusted on a regular basis to reflect changes in international oil prices. Brent crude, a benchmark for most of the world's oil, has fallen about 15 per cent this month.

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