SINGAPORE: China’s biggest jet fuel supplier said world oil prices will remain elevated throughout 2012.
China Aviation Oil Singapore (CAO) said the global economic slowdown that is widely forecast to deepen next year will not undermine crude prices, which the company forecasts will trade between US$90 and US$110 per barrel.
Oil futures trade in New York is currently at around US$101 a barrel. Volatile financial markets this year have pushed oil prices to as low as US$76 in October, down from the year’s high of US$114.60 in April.
In an interview with Channel NewsAsia, CAO chairman Sun Li said that his forecast was barring unforeseen circumstances such as a full-blown financial crisis.
Mr Sun is also the president of China National Aviation Fuel Group Corporation (CNAF), a state-owned air transportation logistics service provider, which is also the majority shareholder in CAO.
The jet fuel trading company said regional Asian demand for air travel and transport will counter global economic uncertainty to support prices in crude oil and steady growth in China’s aviation sector will be the bedrock of support for oil next year.
That in turn will help CAO escape “relatively unaffected” by the global slowdown.
Mr Sun said: “Compared to the other economic players, I feel that the impact of the financial crisis is lesser. Generally, China’s economic developments in these recent years are faster. The aviation industry for example, only moderated partially and has stayed resilient after the financial crisis occurred. In 2008, the demand for aviation dropped to 7.8 per cent. In 2009, it dropped to 9.8 per cent. This year, it dropped to around 10 per cent.”
Mr Sun said that China’s jet fuel consumption should remain resilient next year and grow at the same pace of 9.5 per cent.
Still, the company said it will be more cautious in its expansion plans.
It has set a target to raise the contribution of its non-China markets to 50 per cent by 2014.
Right now, it stands at around 30 per cent.
CAO currently trades around 7.17 million tonnes of jet fuel per year, a large part of which goes into the Chinese market. China makes up about 70 per cent of its business, with the rest coming mainly from the Asia Pacific, Europe and the US and the Middle East.
CAO said it has the right systems in place to achieve that. It has also been gradually restructuring itself over the past few years to diversify into other segments.
The company on Tuesday marked its 10th anniversary of its listing on the Singapore Exchange and it has since come a long way.
In 2004, CAO was involved a financial scandal where it manipulated its accounts to hide huge losses in derivatives trading of about US$550 million.
Mr Sun said the company has moved on and has put stricter measures such as a risk management committee in place to prevent such incidents.
This is on top of its audit committee, nomination committee and remuneration committee.
There is also a tighter workflow of what it calls a “three-tier control” system” which involves closer supervision on the board level, the management level and operational/execution level.
The system makes sure that the company does not over expose itself to trading risks and ensures protocols are followed.
A reflection of the higher corporate standing it now has is in how it has managed to more than tripled its credit facilities from before the scandal in 2004 to US$1.63 billion currently.
And CAO said these have helped the company to grow strongly over the past three years.
For each year since 2008, trade volume has grown at 15 per cent, gross profit rose 37 per cent, and net profit up 18 per cent.
Mr Sun said: “For a company to come out with such results is not easy. We have grown fast. It shows we have maximised our opportunities with the support of other companies.
CAO said it expects earnings this year to surpass 2010 after a 24 per cent hike in its third quarter profit.
But it warns that next year could be more complicated as it expects greater risks and tighter funding due to the economic uncertainties.