Both are in focus; but neither is isolated.

A recent appreciation of the Chinese yuan will have mixed effects upon China's oil industry, but the impact is limited as the change remains only a moderate 2 percent, said economists and industry experts.

The petroleum industry has been vociferous over its concerns for the stability of the Chinese economy. The stronger yuan will first show its effect on oil imports, said industry analysts, as the country relies on foreign sources for 40 percent of its oil needs.

"The strengthened yuan will be a positive move for China's oil imports, because the increased renminbi exchange rate means reduced costs for China when buying crude oil on the US-dollar-denominated world market," Deng Yusong, vice-division-chief of the Research Institute of Market Economy under the Development Research Centre (DRC) of the State Council, told China Daily in a telephone interview.

Drastic oil import increase unlikely

Even so, the stronger yuan is unlikely to cause an obvious increase to the volume of oil imports for the world's second largest energy consumer after the United States, as the rise in the renminbi exchange rate is only a "mild step," Deng said.

"Moreover, crude oil is not a product with much elasticity - a change in price would not induce shake-ups within the overall market. The current soaring crude prices on the international market will continue to hamper the country's oil imports," he added.

He Jun, a senior industry analyst and vice-president of Beijing Anbound Consulting Co, agreed with Deng in this respect, explaining that buying oil products is not merely about the market situation, but sometimes more to do with government concerns of a strategic nature.

"It (importing oil) should be a long-term plan, which is not affected much by instant market shifts - let alone the adjustment to the exchange rate is only a marginal 2 percent," He said.

For the market of refined oil such as gasoline and diesel which has gone through frequent price changes, analysts said the yuan revaluation will be unlikely to result in a further fall of refined oil retailing prices, which saw a hike of around 7 percent last Saturday.

"On the one hand, the current refined oil retailing prices on the domestic market are still much lower than those in the rest of the world. There is little room for the nation's refined oil retailing prices to fall," DRC's Deng said.

"And on the other, the impossibility of cutting domestic refined oil retailing prices also comes from the central government's effort to peg the domestic prices more closely with the overseas market, which has been showing a bullish trend," said Deng.

Domestic oil traders will not sharply increase their refined oil import, because the price difference of 600 yuan (US$74) per ton in the domestic market and 700 yuan (US$86) in the world market will keep the trading business non-profitable, said Huang Meilong, a petrochemical analyst with the Shanghai-based Shenyin Wanguo (SYWG) Research & Consulting Co Ltd.

Those who should feel the greatest impact of the recent yuan revaluation, analysts said, are the country's oil companies.

"The impact would vary for different categories of the oil companies' business portfolios," said Gong Jinshuan, a senior analyst with the country's largest oil and gas producer, the China National Petroleum Corp (CNPC).

Impact will be negative for those oil firms' upstream refining business as well as those in chemical production, since the products of both these sectors are priced on the basis of the US dollar, said SYWG's Huang.

For the refining business, the effect is positive as the yuan appreciation means lower costs when buying the US-dollar-denominated crude oil.

(China Daily July 27, 2005)