Price caps may result in diesel shortage in China

Both PetroChina Co. and China Petroleum & Chemical Corp. (Sinopec) have reduced their product output, have drawn down their product inventory and now sell more fuel directly through their own retail stations. This move by the two Chinese state-controlled majors has resulted in a diesel fuel shortage among China’s independent fuel retailers. According to the state-run newspaper, China Daily, more than 10,00 privately owned fuel stations out of a total of 44,005 stations are facing diesel shortages. In October, the government had slashed the retail price of gasoline by 3.2% and diesel fuel by 3.5%, in an effort to slow down inflation. These price caps have resulted in smaller profit margins for the companies. According to reports, PetroChina could declare a net loss of RMB 50 billion (US$7.84 billion) by the end of this year because of the price caps. The company had a profit of RMB85 billion (US$13 billion) in 2010. (October 21, 2011)