“Second, gasoline and diesel wholesale prices equal the highest increase. Contract by the supplier to the retail and distribution enterprises, the maximum wholesale price at the maximum retail price to determine the upside down 300 yuan; the contract is not agreed upon distribution, the maximum wholesale price of not less than 335 yuan Flip determined. When the market retail price is lowered, the wholesale price should be reduced accordingly to maintain wholesale and retail price difference is not less than $ 300. Refined oil wholesale enterprises can not exceed the maximum wholesale price of the premise, in consultation with retailers to identify specific wholesale prices.
Third, meet the qualifications of private companies supply the highest wholesale price, the highest deduction of 400 yuan to determine the retail price, retail prices when the market decreases, the supply of private wholesale enterprises price should be reduced accordingly to maintain spread is not less than $ 400. Specific supply price can not exceed the maximum supply price under the premise of consultation by both parties.
Six, price departments at all levels should strengthen supervision and inspection of oil prices, CRACK DOWN ON THE OCCASION OF THE USE OF PRICE ADJUSTMENT BUYING, hoarding behavior”
If you read the report carefully this is not just pertaining to retail pricing only. What is interesting is that “priced adjustment buying” applies to all sides (wholesale and retail). There seems to be a legal implication for wholesalers whose profit margins are greater than what the government allows. It sounds like the price movements between refineries, wholesalers, and retailers are kept in sync and always in tandem. So, how would these rules affect wholesale distributor’s profit margins?
All this article relates to Hainan Province not Shanxi where LPH operates, so I can not comment on this.
I just want to remind you that it is not the first price hike LPH is dealing with, for the last year it was done several times, even in February 2012 was the last one and LPH confiemed it will benefit from this.
This is extract from latest PR "At December 31, 2011, the Company held more inventory "on-hand" to take advantage of additional product purchases during a period of fluctuating prices. During this time, the Company also increased its advances to suppliers to lock in pricing based on uncertainty associated with the international crude oil price fluctuations from tensions in the Middle East. The Company is continuously working to optimize its inventory turnover, which expands sales capacity based on increased inventory movement. In times of anticipated rising prices, the Company tries to lock in pricing and increase inventory on-hand prior to the PRC pricing mechanism adjusting the set retail price upwards. Longwei's supplier advance balance with refineries also allows the Company to lock in supply so that it can react quickly to purchases based on the timing of the PRC pricing level adjustments.
On February 8, 2012, the NDRC announced its first retail price increase since April 2011. The retail price of gasoline and diesel was increased by 300 yuan (approximately $48 USD) per metric ton."
Last year they benefited as well what was confirmed by the higher margin realized in June 2011 ended quarter.