Having talked about Petrobras's failure to establish a meaningful pricing policy, I was fortunate enough to discuss with Sinopec (386 HK) their approach, especially in light of the liberalization of prices following the 3rd Plenum.
As I had posted earlier, the pricing adjustments announced at the 3rd Plenum were not as far reaching as the headlines suggested, as several firms had already moved to more transparent policies. In the case of Sinopec, they actually moved to an improved formula as of March 26th, including publishing the changes to their website. These changes were the 5th round of improvements to pricing since 1998.
The two key points this year were;
1) Import parity is now calculated on a 10 day moving average, down from 22 days
2) The automatic trigger was lowered from a 4% price move to RMB50/ tonne. At around 7.3 barrels/tonne and $100/ barrel, that equates to a readjustment for every 1% change in the price of oil currently.
Frankly, even if Petrobras adopted Sinopec's old formula, it would still be a huge improvement.
I also caught another break on Monday when Clément Gignac published a commentary in Canada's Globe and Mail of the end of QE and its affect on the US 10 year bond. Read the article for his methodology, but the final passage says it all,
"In a nutshell, when the Fed finally puts an end to QE, which should happen by the end of 2014, long-term rates should march up toward about 3.5 to 3.6 per cent, a rise of 75 basis points from current levels. But 10-year rates should only return to a more “normal” level of around 4.5 per cent when the Fed brings its monetary policy back to neutral, which would be in line with a Fed funds rate of about 2.5 per cent to 2.75 per cent."
Although he is slightly more "bearish" than I am (I see QE ending in 2015), I would still describe a rise in the 10 year yield to 3.5% as modest and accommodative. It is certainly not enough to derail long-term funding for Emerging Markets.
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