Fuel giant says dollar to blame

JAMES WEIR
Last updated 07:56 18/07/2013

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Drivers have seen an unprecedented climb in the price of petrol in the past month, but most factors are out of the control of local fuel companies, says BP New Zealand managing director Matt Elliott.

Petrol prices have risen 11c a litre in the past month to about $2.27 a litre, massively affected by the drop in the New Zealand dollar, as well as international events pushing up the cost of fuel.

"We appreciate it is difficult for motorists out there; there are lots of rising costs," Elliott said.

"A lot of people are struggling with the price of fuel . . . but we haven't see major changes in the demand, at the moment."

Motorists were not yet switching to using public transport more.

The New Zealand dollar has slumped from US86c in April to a recent low of about US77c this month. An industry rule of thumb suggests each US1c fall in the currency corresponds to a pump price rise of about 1c. The currency was trading about US78.8c yesterday.

"The exchange rate has had a massive bearing on it [petrol prices]," Elliott said. The price of fuel was also affected by refined product prices and shipping costs.

"We are seeing huge volatility in all those areas at the moment, and an unprecedented climb in prices in the last few months and that's been hard for customers," he said.

World fuel prices had also risen because of political uncertainty in Egypt, and there were also concerns about lower stock levels in the United States.

The economic slowdown in China had not been enough to offset other factors pushing up world prices.

However, the Automobile Association said recently that the latest petrol price rise was unjustified, especially when the kiwi dollar had recently recovered some ground.

Government monitoring of importer profit margins shows the industry average is around 25c a litre at present and has peaked at almost 35c in the last year, and sunk as low as 18c. The margin was about 18c in mid 2011.

The figure includes costs for running the fuel businesses, from trucks to storage tanks, to sales, marketing and head office costs, as well as wholesale and retailer margins. (An earlier version of this story incorrectly said the figures excluded these costs.)

BP agrees profit margins have improved since 2010, but says they had to, so that fuel companies would reinvest here.

BP made $100 million last year and $125m the year before that.

But the company had large investments in the country, including the working capital for fuel, which can be from $500m to $800m. It sells 1.7 billion litres of fuel a year for trucks and cars, excluding its aviation and marine fuels business.

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Elliott would not say if he thought present profit margins were "enough". But he pointed out that when Shell left the retail business in New Zealand there had been a "massive underinvestment" in the industry, and that posed challenges to keeping a secure supply chain for customers around the country.

"At times in the past [the profit margin] has not been sustainable and we need to have a sustainable return, to make sure we have comfort in reinvesting in the business. And that's what we have been doing."

One example was construction of the Seaview fuel terminal in Wellington for $24m.

Despite rising prices, BP has maintained its market share at about 28 per cent. It has 81 of its own BP Connect petrol stations and 120 independent dealer stations flagged under the BP brand.

- The Dominion Post

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