China’s fuel demand – malaysiakini

Further evidence of China’s economic slowdown emerged, as the nation announced its diesel imports plunged last month and its largest oil company said a sharp drop in demand is hurting business. Beijing’s recent stimulus plan, however, is showing early signs that it will help revive fuel demand.

China also was a net exporter of gasoline for the second month in a row, as budget-conscious drivers held back on using their cars. Imports of fuel oil used in power plants to generate electricity also dropped.

China is the world’s second-largest oil consumer, after the U.S. Its rapid increase in imports in recent years helped drive the surge in global oil prices to record highs this summer, and signs of weakness in its demand have been partly responsible for the plunge in prices in the months since.

However, the 4 trillion yuan ($586 billion) stimulus plan, announced last week, is expected help spur local governments’ spending on infrastructure projects, bolstering demand for fuel and other commodities.

Credit Suisse raised its estimate for China’s gross domestic product growth in the fourth quarter to 6.8% from 5.8%, citing the impact of the stimulus package. “A wave of local government driven infrastructure investment has just taken off,” Credit Suisse economist Dong Tao said in a report. The projects had been ready to go and blocked by Beijing, so started relatively quickly, he said.

Meanwhile, Jiang Jiemin, head of China National Petroleum Corp., said in a statement on the company’s Web site that demand for fuel has fallen steeply since September, pushing up stockpiles of unsold gasoline and diesel. “As the global financial crisis and its impact on China’s economy deepen, the company’s business has also been significantly affected,” he said. CNPC is the parent of PetroChina Co., which lists shares in Hong Kong and New York.

CNPC faces mounting pressure to lower pump prices at its gas stations below the narrow band set by the government. Other filling stations in some parts of the country have begun price wars. More loosely regulated wholesale prices also have been falling in some parts of China. In addition, the price of petrochemicals has fallen sharply as industrial demand has withered, Mr. Jiang said.

China’s diesel imports dropped to their lowest monthly level in more than a year in October, as the slowing economy ate into demand and traders saw little need to top up already high stockpiles. The country imported 80,000 metric tons of diesel in the month, down 46.4% from October 2007 and well below the 338,838 tons imported during September, according to preliminary data from the General Administration of Customs.

China’s petroleum data often show big, unexplained short-term swings, and analysts caution against reading too much into a single month’s figures. Diesel stockpiles appear to have risen sharply ahead of the Olympics, and part of the sharp drop in imports last month could be the result of that big buildup.

China’s government doesn’t issue data on inventories of crude or oil products held nationally, but analysts believe diesel stocks in the first nine months of the year were more than twice those in the same period of 2007.

“Many trucks use diesel as fuel, so if economic growth is slowing down, transport demand [for diesel] will drop sharply,” a Singapore trader said.

A resurgence in construction could prop up demand for oil and other commodities. Diesel is used to power the heavy machinery in building projects, and more building activity would require more electricity, which could also drive up use of fuel oil.

Despite the drop in imports of refined oil products such as diesel, China’s imports of crude oil in October grew at brisk pace, which could mean Chinese oil companies are taking advantage of comparatively cheap global oil prices to rebuild their stockpiles. Some analysts also say they think that China’s government is buying crude for its strategic petroleum reserve.

This entry was posted on Wednesday, November 19th, 2008 at 4:27 pm and is filed under World. You can follow any responses to this entry through the RSS 2.0 feed.