FACTS ABOUT THE AUSTRALIAN RETAIL FUELS MARKET & PRICES RETAIL PRICES & INFLUENCES The mst imprtant influences n retail fuel prices in Australia are: the internatinal price f refined fuel the exchange rate f the Australian dllar against the US dllar gvernment taxes whlesale and retail csts and margin lcal area cmpetitin between fuel retailers the well-established weekly retail price cycle in many metrplitan areas affecting day-t-day prices ther lcal area (eg. custmer base) and service statin business factrs (eg. prduct fferings) Retail prices are clsely linked t the internatinal (Singapre) price f refined fuel, which is the largest cmpnent f the retail price, accrding t the ACCC. Australian fuel prices are based n the reginal benchmark fuel (nt il) prices fr the Asia-Pacific regin that is, the Singapre prices fr petrl (eg. MOPS95) and diesel (Gasil 10ppm sulfur). Accrding t the ACCC, Singapre fuel prices are the relevant Australian benchmark prices because Singapre is the market that the eastern hemisphere refers t, it is the clsest majr refining and marketing centre and is a cmmn surce f imprted petrl t Australia. T meet Australian demand, arund 40% f fuel is imprted, mainly frm Singapre and Asia. Therefre, Australian retail prices are influenced by internatinal supply and demand pressures. See AIP Factsheets n the Internatinal and Whlesale markets fr mre details n the links between Internatinal and Australian fuel prices and n the impact f the exchange rate. Gvernment taxes cmprise a fixed excise rate f 38.143 cents per litre n petrl and diesel plus GST f 10 per cent n the final retail price. In 2013 14 the tax cmpnent (GST and fuel excise) f the retail price f petrl averaged abut 34 per cent r 52 cents per litre. Payments t the Australian Gvernment (frm fuel excise, GST n fuels and incme tax) by AIP member cmpanies is typically ver $20 billin. Whlesale and retail csts and margin represent a small part f the retail fuel price and include: whlesale csts and margin, cmprising: imprting csts t land fuel int Australia (ther than the internatinal price f refined fuel ). These csts include the quality premium fr specific Australian and State fuel standards, freight, wharfage, insurance and lss and ther charges. These accunted fr 4-6 cents per litre fr petrl in recent years, accrding t ACCC. The internatinal price f refined fuel plus imprting csts is called the Imprt Parity Price r the refined prduct cst t Australia (see Chart ver). whlesaling csts and margin t stre and handle the fuel nce it arrives in Australia and prir t its distributin t the dmestic market. These include terminal capital and perating csts and a small whlesale margin r prfit where cmpetitively pssible. Whlesale margins and peratinal csts accunt fr arund 5 cents per litre (ACCC). The ACCC estimates that ver the last 12 years after deducting thse expenses the whlesale sectr made an average annual net prfit acrss all fuels f 1.7 cents per litre. retail csts and margin t get the fuel frm the refinery/terminal t the bwser. These include rad freight csts, admin and marketing csts, and service statin running csts like wages, rent and utilities and a retail prfit margin. There is nly a small prprtin f the retail r pump price (arund 5% n average) which is received by fuel retailers t cver these csts.
Accrding t the ACCC, petrl industry csts are dminated by refined internatinal benchmark prices and taxes, as shwn in the chart belw. Retail Petrl Price Cmpnents: NATIONAL AVERAGE 2013 14 (151 CENTS PER LITRE) The Chart belw shws the relatinship between recent mvements in natinal average petrl retail prices and Internatinal (Singapre) petrl prices. Mvements in the internatinal price f refined petrl have generally been passed n t Australian mtrists (bth up and dwn), accrding t the ACCC. Cmparisn f the Singapre Petrl Prices & Australian Retail Petrl Prices: 2014 (7 Day Rlling Average) There is a lag between mvements in internatinal refined fuel prices and Australian retail prices. Accrding t the ACCC: The length f the lag depends n factrs such as the speed with which prducts mve thrugh the supply chain, the dates n which purchases are made, the speed f the internatinal price mvement and the cntractual arrangements. Cnsequently, shrt-term cmparisns at a particular pint in time can be misleading, especially if different pints in the price cycle are chsen. Where pssible, cmparisns between internatinal and lcal prices shuld be viewed ver lnger perids.
RETAIL PRICE CYCLES Retail prices in many metrplitan areas typically fllw a discunting cycle (a saw tth pattern). Custmers in many capital cities will be familiar with these discunting cycles. Highly visible price bards allw custmers t take advantage f lw prices and cmpetitrs t bserve price discunting. Petrl prices fall steadily due t service statin peratrs aggressively discunting t attract custmers. Hwever, maximum discunts can nly be sustained fr shrt perids befre prices are restred. This is typified by a lift in prices befre the discunting cycle starts again. Many mtrists have been able t take advantage f the price cycle t purchase fuel n the cheaper days f the week, accrding t the ACCC. This is demnstrated by mre petrl being sld n the cheaper days, accrding t the ACCC. The ACCC have estimated that 60% f petrl sales are belw the average price f the cycle. The ACCC and ther rganisatins prvide advice t cnsumers n lw price days f the week. Lcal market factrs and cmpetitin drives the discunting cycle. Accrding t the ACCC, price cycles d nt ccur in the internatinal benchmark prices; they are due t the pricing plicies emplyed by the lcal petrl cmpanies in the face f lcal cmpetitin. The presence f a discunting cycle is a clear demnstratin f vigrus cmpetitin. Fr example, the ACCC has estimated that at the bttm f the cycle, prices can be belw psted TGPs (ie. indicative whlesale prices). Petrl prices d nt increase because f lng weekends r public hlidays. ACCC analysis clearly shws that price mvements arund public hlidays have been similar t price mvements at ther times WHO SETS RETAIL PRICES Price levels vary between service statin peratrs. The price charged at an individual site can vary due t the lcatin, quality r size f the site, the ther prducts available at the site, the number and identity f the ther service statins in the area and the pricing plicies f the peratrs, accrding t the ACCC. Accrding t ACCC analysis: The supermarket and independents (including branded independents) perate and set the prices at ver 80% f retail sites acrss Australia. The majr il cmpanies perating in the retail market (BP and Caltex) nw directly wn and perate nly 10% f retail sites acrss Australia. Wh Owns and Operates Retail Sites: 2013 2014 SOURCE: ACCC
CITY VERSUS COUNTRY PRICES Prices can vary greatly between city and reginal twns and areas due t differing cmpetitive and ecnmic characteristics. Retail prices and margins in reginal areas are als typically higher cmpared with majr capital cities. This is due t: Lwer fuel vlumes and cnvenience stre sales ver which t recver service statin perating csts. Reginal service statins typically see 1 tanker per 2-3 weeks versus 1 tanker per day at sme city sites. The average custmer base per service statin is arund 2,000 peple in reginal areas (and well belw in many twns) whereas metr/city sites have a custmer base f arund 4,000 t 5,000. As a result, the ACCC has fund that if a typical cuntry service statin is selling arund half the vlume f a typical city service statin then it needs t sell petrl at arund 4 cents per litre mre t earn the same return n sales. Distance (and thereby freight csts) is als imprtant, and usually the further the service statin lcatin is frm a refinery r majr terminal, the higher the retail price. On average, freight is typically arund 1.5 t 4 cents per litre greater fr cuntry than city delivery. Strage and handling csts may be significant fr sme cuntry areas where fuel must be stred in depts and duble-handled, rather than being delivered directly frm castal terminals. The general absence f the weekly discunting cycle in reginal/cuntry areas means that reginal prices are higher than fully discunted r average city prices. Because f these factrs, the ACCC estimates that prices in reginal centres and cuntry twns have been abut 5.8 cents per litre higher, n average, than prices in the five largest cities ver the past 10 years. Cmpetitive frces and csts als vary greatly between cuntry twns, s that pump prices d nt just reflect vlume, freight and handling differences. Accrding t the ACCC, price changes in reginal centres and cuntry twns als tend t lag behind price changes in capital cities, bth up and dwn, reflecting the extra time it takes fr stcks t mve thrugh the supply chain in reginal centres and cuntry twns. In reginal areas, retail prices are largely set by independent wner/peratrs, including thse wh sell fuel supplied by ne f the majr brands under licence. RETAIL FUELS MARKET & TRENDS Retail fuel prices apply t almst half f the fuel sld in Australia. The retail fuel market is highly cmpetitive (nt a cncentrated market) and has been underging significant change fr the past three decades. ACCC analysis shws that the mst significant changes in market shares f retail sales by brand have been the increased market shares f the supermarkets. Arund tw thirds f retail petrl vlumes are sld thrugh sites perated by supermarket alliances r independents see Chart belw. While the refiner marketers (ie. majr il cmpanies) brand names appear n the majrity f petrl retail sites, it is imprtant t nte that mstly the businesses are actually wned and/r perated by supermarkets, independent retailers, franchisees, r cmmissin agents, accrding t the ACCC.
Market Shares: Petrl Vlume Sld by Brand 2013 14 SOURCE: ACCC The mst significant trend in the retail fuels sectr ver the last decade has been the reductin in the number f retail service statin sites and the mve t higher vlume utlets lcated in busy areas and n highways where there is greater traffic vlume, thus achieving ecnmies f scale. The number f retail sites has reduced frm arund 20,000 sites in 1970 t arund 6,300 nw. Accrding t the ACCC, Cles and Wlwrths perate arund 1,200 retail sites, which is arund 20 per cent f all service statins. Hwever, the ACCC has cncluded that cnslidatin f retail sites has plateaued in recent years. There has als been a crrespnding increase in the average vlume sld at each site and an increase in reliance n revenue frm nn-fuel prducts such as cnvenience stre sales and car washes, accrding t the ACCC. Fr example, the ACCC estimates that the average grss margin n nnfuel (shp) sales was 30.6 per cent in 2013 14. In cntrast, the grss margin n petrl sales was 8.1 per cent and 8.3 per cent fr diesel sales. RETAIL MARKET PROFITS The retail fuels market is a high-vlume, lw margin business. Retail prfits are vlatile (due t the nature f the market) and are typically a very small prprtin f the retail price. The ACCC has estimated that the retail sectr as a whle (fuel and nnfuel sales) has earned net prfit at an annual average rate f 2.1 cents per litre fr the past 9 years. Accrding t ACCC Reprts: The average net prfit n fuel ver the past 9 years was 1.3 cents per litre. While nn-fuel sales made up less than 20 per cent f ttal revenue in 2013 14 they cntributed ver 40 per cent t retail sectr net prfits. The retail sectr has abut the same prfitability as verseas petrl retailers but is less prfitable than ther kinds f Australian retailers. The ACCC frmally mnitrs fuel prices in Australia, and the prices paid, csts and prfits f majr fuel suppliers, under the Cmpetitin and Cnsumer Act 2010 and the latest ACCC Mnitring Reprt, which analyses in detail the Australian retail market and prices, is available frm www.accc.gv.au.
RETAIL PRICE COMPARISONS & COMPETITION Fuel prices t cnsumers and majr fuel users in Australia are highly cmpetitive, prviding the dmestic ecnmy with a cmpetitive advantage and underpinning the cmpetitiveness f Australian industries like mining, agriculture, transprt, manufacturing, frestry and fishing. Accrding t the ACCC, by internatinal standards Australia has amng the lwest petrl and diesel prices, n bth a pre-tax and pst-tax basis see chart ver. The ACCC nted that, even when Australian prices were at recrd highs (in July 2008) Australia still had lwer retail prices than all but three members f the OECD. When cmparing Australian fuel prices t ther cuntries, allwance must be made fr different gvernment taxes and rates n fuel and fr any subsidies and rad user charges that dn t apply here (eg. in New Zealand). Many cuntries in the Asian regin heavily subsidise retail fuel sales. Fuel prices tday are als arund the same level as back in the mid-1980s (in tday s dllars). Retail fuel prices ver the last 30 years SOURCE: ABS Since 1983, the increase in retail fuel prices paid by cnsumers has been less than the increase in the CPI and the price increases fr ther majr husehld items (when fuel taxes are excluded). Percentage change in retail prices: 1983 t 2013 SOURCE: ABS Cnsumers are getting value fr mney in Australia because the fuels market is highly cmpetitive. This is a view shared by successive gvernment reviews f the petrleum market and by many infrmed cmmentatrs and analysts, including the ACCC and Internatinal Energy Agency. All the way alng the crude il and prducts supply chains there are several large and numerus smaller market participants cnstantly driving market cmpetitin.
Petrl and Diesel Retail Prices and Taxes in OECD Cuntries: September Quarter 2015 Petrl Prices and Taxes in OECD Cuntries Diesel Prices and Taxes in OECD Cuntries Netherlands Tax Cmpnent United Kingdm Tax Cmpnent Italy Switzerland United Kingdm Sweden Nrway Italy Denmark Nrway Greece Finland Belgium Ireland Finland Germany Prtugal Denmark Sweden Netherlands Germany Belgium Ireland Prtugal Switzerland Slvak Republic France Greece Slvak Republic Hungary Austria Czech Republic Spain France Luxemburg Austria Hungary Spain Czech Republic Pland Krea Luxemburg Pland Krea New Zealand Japan Japan Australia Australia Mexic Canada Canada Mexic New Zealand United States United States 0 50 100 150 200 250 300 0 50 100 150 200 250 300 cents per litre ($A) cents per litre ($A) SOURCE: AUSTRALIAN PETROLEUM STATISTICS, BUREAU OF RESOURCE & ENERGY ECONOMICS