This is due to a sharp decline in oil prices in the final quarter of 2008, as a result of which the unit incurred an operating loss due to higher procurement costs of jet fuel versus its sales revenue. 'The decline in the regulated domestic prices in the PRC during the month of December 2008 exacerbated the losses,' CAO added. As a result, CAO group's share of net loss from the unit is expected to be about US$11 million. The unit's management has, however, indicated to CAO that 'in view of falling oil prices for the past months and the inventory procured during the period of high oil prices is expected to be fully consumed by the first quarter of 2009, the aforesaid loss is to be considered exceptional'.
Notwithstanding the Q4 setback - its first quarterly net loss for the year - CAO said that it would remain profitable for the year ended Dec 31, 2008. It also stressed that 'despite the current global economic downturn, the fundamentals of CAO's core businesses have remained strong'. 'The group is taking proactive steps to further diversify its earnings base. It is also actively seeking to invest in more synergetic oil-related assets,' it added. Last December, CAO said that it was already discussing alternative jet fuel supplies, including long-term supply deals for Chinese airports with various parties including British Petroleum.
It indicated that it was talking to traders, oil refiners and oil majors in countries such as Japan, South Korea and Taiwan regarding the supplies. These long-term deals will supplement those which CAO obtains through monthly tenders from these countries, which so far have been its sole source of the jet fuel. Pending the outcome of the negotiations, BP Singapore will supply 'a small portion' of CAO's monthly fuel requirements for onward supply to China under a one-year deal, which started earlier this January.
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