China to raise fuel prices 6-6.5 percent

BEIJING (Reuters) - China is raising the retail price of gasoline and diesel by 6 percent and 6.5 percent respectively from Tuesday to track climbing crude prices, the government said, a move that could help pare refining losses at oil firms.

The increase, the second in about a month and the fourth this year, would bring fuel prices close to an all-time high reached in late March.

China, the world's second-largest fuel user, cut prices three times in a row between May and July.

The higher pump rates may help top refiner Sinopec Corp (0386.HK) and number two PetroChina (0857.HK) trim huge losses incurred earlier in the year.

But they could also dampen demand after the world's second-largest oil user recorded the lowest consumption in 22 months in August as industrial activity in China slowed.

"The diesel market has shrunk a lot, especially in the industrial sector," said Zhou Jie, a manager of a privately-owned diesel dealer in eastern Zhejiang province, one of China's manufacturing and export hubs.

With effect from Tuesday, the ceiling for retail prices will rise 550 yuan ($86.7) per tonne for gasoline and 540 yuan per tonne for diesel, the National Development and Reform Commission said on its website (www.ndrc.gov.cn) on Monday.

It said since the last rise in August, global crude prices had shot up "on the back of an improvement in U.S. economic indicators, continued unrest in the Middle East and expectations the U.S. and Europe could come out with new economic stimulus plans".

The 22-day moving average price of Brent, Dubai and Cinta -- with which China's pump prices are linked -- on Friday was 8.4 percent above the level when China last raised fuel prices on August 10, data from ICIS C1 showed. (www.icis-china.com)

An increase in crude benchmarks by more than 4 percent over a 22 working-day period typically triggers a hike under China's current pricing regime, though the government often postpones rises if it is worried about inflationary pressures.

Fuel price hikes often lag the gains in crude costs or are delayed due to the government's concern over inflationary pressure, leading to refining losses.

Sinopec Corp (0386.HK) reported a refining loss of 18.5 billion yuan in the first half of 2012, compared with a 12.2 billion yuan loss a year ago.

PetroChina (0857.HK) posted a loss of 28.9 billion yuan in the same period, most of that in the refining business.

(Reporting by Judy Hua and Chen Aizhu; Additional reporting by Ben Blanchard; Editing by David Cowell)