Chinese stocks up on increased oil prices

By Jin Jing (China Daily)
Updated: 2008-06-21 10:34

SHANGHAI: The mainland stock market jumped 3.01 percent on Friday, after the government raised oil product prices by more than 15 percent Thursday night, which pushed the large-cap PetroChina and Sinopec upward.

An investor monitors price changes at a securities house in Haikou, Hainan province. The Shanghai Composite Index rose 3.01 percent to 2831.74 on Friday. [China Daily]

The benchmark Shanghai Composite Index rose 82.87 points to close at 2831.74, with 614 out of 912 stocks closing higher. The Shenzhen Component Index jumped 2.32 percent to close at 9373.69.

The turnover on two bourses amounted to 113.2 billion yuan, up 25.8 percent from Thursday. The total capitalization increased 2.8 percent to 18.3 trillion yuan.

Shen Minggao, an economist at Citi China, said the hike of energy prices on Thursday evening suggests that the government is concerned about both the energy shortage and the downside of the stock market. The Shanghai Composite Index has fallen nearly 50 percent this year.

In Friday's trading, shares of PetroChina surged 4.55 percent to 15.86 yuan, and Sinopec jumped 2.07 percent, boosted by the price hike, though they are still expected to be operating at a loss in the refining business.

Power producers jumped as they are expected to be the major beneficiaries of the increase in electricity prices. "The hike of electricity charges by 0.025 yuan per kWh are expected to raise the net profit of electric power generating companies by an aggregated of 25 billion yuan," said Zhu Yin, an analyst at Haitong Securities.

Jing Ulrich, chairman of JPMorgan China Equities, said "the cap on prices for thermal coal, though set at a high level, will protect power producers against further fuel price rises, if it can be effectively enforced".

Though the move is likely to boost investors' confidence over a few beneficial sectors, more investors will start to worry about the shrinking profit margins in the manufacturing sector, analyst said.

"The price hikes will have an uneven impact on profitability. Oil refinery companies and power plants could benefit from price increases. But energy-intensive manufacturing, such as metals, or users of metals and transportation industries could see further profit squeeze," Shen said.

Aluminum and steel companies slid the most in Friday's trading.

Airline companies tumbled due to the rising cost after the hike of aviation fuel by 1,500 yuan a ton. "The price hike will have large negative impact on profits of airline companies.

Though airline companies may be allowed to further raise the fuel surcharge, it is difficult for them to transfer the rising cost to passengers in such a cooling aviation market," said Tao Wei, an analyst at China International Capital Corp Ltd.