Another but this time SIGNIFICANT gasoline price increase.
"The domestic prices of gasoline and diesel was raised by 600 yuan per ton
That means each ton of fuel that LPH has in its inventory is worth more by 95$.
LPH normally has app. 57.000 metric tonnes in the tanks therefore I assume app. 5,4m$ additional profit due to price hike that will be probably realised in 2Q 2012.
Marek, nice find on oil pricing in China. LPH was busy buying gas/diesel when the prices where much lower. The 17 years of business experience for LPH management is making money hand over fist for investors imo.
When the catalysts occur, LPH may hit a new all time high!
I guess you haven’t read the other recent article.
According to the information on this link, as of April 2011 it is illegal for a private Chinese company to exploit on “price adjustment buying”, meaning buying when NDRC sets price at its “low” and hoarding it (presumably in storage tanks) until price goes up.
“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 against spreading rumors, disturbing the market price of the order, and maintain oil market stability.”
I wonder if these rules would affect LPH’s business.
That restriction relates to retail prices what was once explained by LPH.
Moreover LPH purchased its inventory well before the decision on the price hike was made.
It is normal situation - last price increase was 2 month ago and LPH also said it will benefit on this.
Which means standard (93) gasoline and #0 diesel just cracked $5/gallon. Next hike in six weeks tops.
It shouldn't be any problem to explain to cab drivers and truckers that they must continue to operate at a loss. China's 8.5% YOY growth without inflation will continue. That is a direct order from the Ministry.
Truckers, Taxicab-owners and food-eaters not complying with this mandate will be harmonized by the state. Now go about your business and report suspicious activity.
absolutely a significant retail oil price increase.
Everything hinges on the PRC price controls, and once again LPH is in the sweet spot for the next few months. Expect quarterly profits to add about $5M as per Marek's detailed analysis.
Thanks for the analysis. I agree this is why LPH could not raise cash in late fall/winter this year - none of the oil wholesalers wanted to sell oil and compressed margins, so sales were weak until China relented and lifted the price ceiling so that agricultural petroleum sales would not experience a shortage. The oil is flowing again throughout China, refiners now have a margin once again, as do wholesalers and retail gas stations.
The lowering of the retail ceiling price by China last fall was the reason margins were squeezed and the deal could not close in the original timeframe.
The RAISING of the ceiling price of gasoline by China in March 2012 is the reason that margins have now increased and based on Marek602's estimates LPH should have about $5.4 million extra profit per quarter from now onwards.
Hence LPH putting photos of their to-be-acquired Haujie facility on their corporate website indicates the deal closing date may be approaching fast.
One correction 5,4m$ extra profit due to higher margin realised in Q2 will be JUST ONE TIME event not continous. Normalized (without retail price increases) gross margin level is 14,5-15,0% only on oil sales. While in Q1 and Q2 I expect respectively 16,0% and 18,1% due to retail price increase by Chinese govt.
The deal closing I expect however in September 2012 due to 30-40m$ additional working capital needed for Huaije ram up.