TAIYUAN CITY, China, March 22, 2011 /PRNewswire-Asia-FirstCall/ -- Longwei Petroleum Investment Holding Ltd. (NYSE Amex: LPH) ("Longwei" or the "Company"), an energy company engaged in the storage and distribution of finished petroleum products in the People's Republic of China ("PRC"), announced today that it expects to benefit from the gasoline and diesel price increase enacted by China's National Development and Reform Commission ("NDRC") on March 20, 2012. The retail prices for fuel were raised for the second time this year, increasing 6.5% for gasoline and 7% for diesel, amid rising world crude prices and falling domestic inflation.
The increase of RMB 600 (approximately USD $95) per metric ton, the second increase in the past two months, is based on a pricing mechanism that allows the NDRC to adjust fuel prices when the cost of crude oil changes by more than 4 percent over a period of 22 working days. After the price increase, average diesel and 90-octane gasoline prices in the PRC will be approximately $4.62 and $4.43 per gallon, respectively. This compares to average fuel prices in the United States for diesel and mid-grade gasoline of $4.15 and $4.00 per gallon, respectively, according to the American Automobile Association ("AAA").
The PRC, the world's second-largest oil consumer, reported an overseas oil dependence ratio of 56% in 2011, according to the China Daily. "With rampant consumption in the spring ploughing season about to come and [the] volatile situation in the Middle East persisting, adjusting fuel prices in a timely manner was an important way to ensure domestic market supply and national energy security," the NDRC stated in a news release regarding the price increase.
"We have been using our working capital primarily to increase inventory and product availability based on anticipated price increases," stated Cai Yongjun, Chairman and CEO of Longwei. "We have been balancing our working capital to take advantage of pricing opportunities to improve margins, as well as balancing the funding required to complete our acquisition of the Huajie Petroleum assets."
At December 31, 2011 the Company had increased its combined balance of inventory on-hand and advances to suppliers by USD $24.2 million or 22.2% to $133.5 million since its fiscal year-end on June 30, 2011. Based on its inventory on-hand product mix of 58,738 metric tons (approximately 19.4 million gallons) of petroleum, the Company's retail inventory value at December 31, 2011 would have increased by approximately USD $5.6 million considering the recent price increase. Longwei also had USD $74.6 million in advances to suppliers at December 31, 2011, which allows the Company to lock in supply and pricing with refineries so that it can react quickly for purchases based on the timing of international crude oil price fluctuations and the PRC retail pricing adjustments.
"We will continue to operate within our business model, which we believe gives us a competitive advantage. By utilizing our large storage capacity and advances to suppliers, we are able to adjust inventory levels based on the anticipated movement of industry pricing, which acts as a hedge on pricing levels," stated Michael Toups, CFO of Longwei. "Utilizing our excess storage capacity allows us flexibility to take advantage of pricing, supply and demand fluctuations within the marketplace."
"The NDRC's decision will enable us to raise prices of our petroleum products, which we anticipate will have a positive effect on our revenues and profits going forward," stated Mr. Cai. "We also expect to experience a slight gross margin improvement, as our inventory on-hand is recorded on a weighted average basis and will be sold at higher market prices."
About Longwei Petroleum Investment Holding Limited
Longwei Petroleum Investment Holding Limited is an energy company engaged in the storage and distribution of finished petroleum products in the People's Republic of China. The Company's oil and gas operations consist of transporting, storage and selling finished petroleum products, entirely in the PRC. The Company's headquarters are located in Taiyuan City, Shanxi Province. The Company has a storage capacity for its products of 120,000 metric tons located at storage facilities in Taiyuan and Gujiao, Shanxi. The Company's Taiyuan and Gujiao facilities can store 50,000 metric tons and 70,000 metric tons, respectively. The Company has the necessary licenses to operate and sell petroleum products not only in Shanxi but throughout the entire PRC. The Company's storage tanks have the largest storage capacity of any non-government operated entity in Shanxi.
The Company seeks to earn profits by selling its products at competitive prices with timely delivery to coal mining operations, power supply customers, large-scale gas stations and small, independent gas stations. The Company also earns revenue under an agency fee by acting as a purchasing agent for other intermediaries in Shanxi, and through limited sales of diesel and gasoline at two retail gas stations, each located at the Company's facilities. The Company seeks to continue to expand its customer base and distribution platform through the utilization of its large storage capacity, which allows the Company the flexibility to take advantage of pricing, supply and demand fluctuations in the marketplace.
For further information on Longwei Petroleum Investment Holding Limited, please visit http://www.longweipetroleum.com. You may register to receive Longwei Petroleum Investment Holding Limited's future press releases or request to be added to the Company's distribution list by contacting Dave Gentry at [email protected].
Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about Longwei's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Longwei's operations are conducted in the PRC and, accordingly, are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. Other potential risks and uncertainties include but are not limited to the ability to procure, properly price, retain and successfully complete projects, and changes in products and competition. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Readers should review carefully reports or documents the Company files periodically with the Securities and Exchange Commission.
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