GASOLINE PRICES in China have been cut by some 14% with effect from 19 Dec 2008, said China’s National Development and Reform Commission in an official statement last week.
Benchmark retail prices of gasoline in China were slashed to Rmb 5,580 per ton, while diesel prices were slashed 18% to Rmb 4,970.
Furthermore, six categories of road tolls will be scrapped from 1 Jan 2009.
The price and toll cuts will lower car maintenance cost and indirectly boost domestic auto demand, according to a Guosen Securities report.
Before the price cut, fuel prices in the country were based on US$83.50 (Rmb 570) a barrel of crude.
But the price in the international market has fallen drastically in the past few months.
Oil fell to a four-and-a-half-year low last Fri in electronic trading on the New York Mercantile Exchange.
The January contract sank as below as US$34 a barrel - down sharply from a peak of nearly US$150 in mid-July.
Analysts said the changes are likely to encourage car buying and rejuvenate the auto industry, which has been hit hard by the global financial crisis.
Commercial and passenger vehicles sales in China have already fallen 15% year-on-year for Nov 2008.
Lin Boqiang, an energy professor at Xiamen University, described the reform as the-more-you-drive-the-more-you-pay scheme.
The latest developments should provide welcome relief for auto parts makers like Lizhong Wheel, one of China’s largest wheel makers.
The aluminum alloy wheel maker generated some Rmb 775 million during the first 9 months of 2008, mainly from domestic sales in China.
27% of its sales came from exports to the US, Europe, Japan and South Korea. Another 64% came from sales of original equipment manufacturer wheels for the likes of world no.1 automaker Toyota. 8% came from retail of aftermarket wheels.
UOB Kayhian has a buy call on Lizhong Wheel with a price target of 30 cents. The stock last closed at 24 cents on thin trade.
Recent story: LIZHONG WHEEL: 2Q08 top line up 20%, in line with industry
