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Analysis: Reform in gas pricing mechanism to pull down profit of fertilizer makers by 20% |
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Written by Administrator
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Tuesday, 03 January 2006 |
BEIJING, Jan 3 (InfoChina) C Following the decision on December 26 by Chinas National Development and Reform Commission (NDRC) to reform the natural gas factory price formation mechanism and raise gas prices, several Shanghai and Shenzhen-listed chemical fertilizer manufacturers living on natural gas have announced one after another that their profit in 2006 is expected to fall significantly.
BEIJING, Jan 3 (InfoChina) C Following the decision on December 26 by Chinas National Development and Reform Commission (NDRC) to reform the natural gas factory price formation mechanism and raise gas prices, several Shanghai and Shenzhen-listed chemical fertilizer manufacturers living on natural gas have announced one after another that their profit in 2006 is expected to fall significantly.
Shenzhen-listed Lutianhua (000912), Chinas largest fertilizer maker using natural gas as raw material predicted that its profit in 2006 will decrease by some 80 million yuan owing to rise of natural gas price. The Sichuan-based company netted profits amounting to 359 million yuan or 0.61 yuan per share in the first three quarters of 2005 and 266 million yuan or 0.45 yuan per share in 2004.
Shanghai-listed Chitianhua (600227) and Yuntianhua (600096), respectively located in Guizhou and Yunnan provinces, also forecast that natural gas price rise will downsize their 2006 net profit by 50 million yuan and 60 million yuan respectively. Chitianhua posted profits of 145 million yuan or 0.856 yuan per share for the first three quarters of 2005 and 105 million yuan or 0.621 yuan per share for 2004, while Yuntianhua netted 530 million yuan in the first three quarters of 2005 and 478 million yuan or 0.95 yuan per share in 2004.
Similar profit slide forecasts are also expected to be made by other chemical fertilizer makers.
Some market analysts here estimate that the average profit of the existing Chinese listed chemical fertilizer manufacturers will plunge by some 20% in the new year because of natural gas cost rise. The range of profit dive may even top 30% for some companies.
China now has eight listed chemical fertilizer makers living on natural gas, and the other five are Cangzhou Dahua (600230), Minfeng Agrochem (000950), Liaotong Chemical (000059), Sichuan Meifeng (000731) and Sichuan Chemical (000155).
In China, more than 30% of the natural gas production is currently used for production of urea, while natural gas cost accounts for some 60% of the urea cost. It is estimated that a 0.1 yuan/cu m rise in natural gas price will lead to a rise of 60-100 yuan/ton rise in urea production cost.
The gas pricing mechanism reform is also to have adverse impact on public transport service operators, urban heat suppliers and some terminal chemicals producers.
Meanwhile, as the natural gas price in China is now greatly lower than that in international markets, there is still much room for natural gas price rise in the country.
But the NDRC has said that the range of upward adjustment should not exceed 8% between two neighboring years. This actually reflects the governments preference to gradual price rise.
Backgrounder: The goals of the natural gas factory price formation mechanism reform are to further standardize price management, raise price level to make it match the price relations with substitutive energies, and establish a mechanism that is pegged to and adjusted dynamically with the price of substitutive energies.
The main contents of the reform cover four aspects:
1) The current natural gas factory prices are classified into two grades, with one for all natural gas produced by Sichuan-Chongqing Gasfield, Changqing Oilfield, Qinghai Oilfield and Xinjiang Oilfield, and part of that produced by Dagang, Liaohe and Zhongyuan oilfields under government planning, and the other for all other suppliers;
2) The current pricing mechanism of determination and guidance by the government will be changed to guidance by the government only, permitting the supplier and the buyer to negotiate specific prices within the government-set range of fluctuation based on the government-set benchmark price;
3) The benchmark price for natural gas will be adjusted per annum in line with the changes of prices of substitutive energies such as crude oil;
4) The benchmark price for the second grade natural gas price is set at 980 yuan per 1,000 cubic meters, and the benchmark price for the first grade natural gas price will gradually be adjusted to the level for the second grade price within a period of three to five years.
Based on the aforesaid price formation mechanism, the natural gas producer price has been adjusted upward nationwide starting from December 26, 2005, by some 50-150 yuan per 1,000 cubic meters for supply for industrial and urban fuel gas purposes, and by 50-100 yuan per 1,000 cubic meters for fertilizer production. |
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Last Updated ( Tuesday, 03 January 2006 )
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