Fuel price increase likely

A fuel price increase of almost R2 a litre next month seems increasingly likely - the rand fell to its lowest against the dollar in 13 years yesterday.

It dipped to below R12 to the greenback as better-than-estimated US payrolls data last week boosted the dollar.

The rand extended its losses yesterday, dipping to as low as R12.38.

Statistics published by the Central Energy Fund already point to an "under-recovery" on petrol this month of averaging more than R1 a litre. The size of the under-recovery is usually a good indication of the severity of the next month's fuel price increase.

For diesel the under-recovery is around 73c a litre.

Add to that the pain of the extra 80.5c in the fuel levy, as announced by Finance Minister Nhlanhla Nene last month.

Barclays Capital analysts said yesterday that they expect a petrol price increase of about 15% next month, but it could be more if the rand continues its slide.

So far the weak rand is contributing only about 12c of the expected increase, the Central Energy Fund's latest daily update showed.

"The recent rise in [the rand/dollar rate] would tend to drive a further increase in the daily under-recovery rates for the rest of the month," said Barclays Capital.

All the relief motorists have experienced at the pump over the past six months could be reversed on the first Wednesday of April.

Bloomberg reports that Société Générale is advising its clients to sell the rand against the dollar as the Federal Reserve moves closer to raising interest rates, reducing demand for assets in emerging markets.

"The guys are now pricing in a hike by the Fed in June," Mohammed Nalla, head of strategic research at Nedbank Group said earlier this week.

"Until we can see some sort of credible reversal in the dollar strength, the rand is likely to remain under pressure."

The rand's 4.1% slump against the dollar over the past five days is changing the outlook, with forward rate agreements pricing in a 25-basis point increase in interest rates in May, compared with no change a month ago. 

- TJ Strydom. Additional reporting by Bloomberg