China’s diesel sales shrunk in June on slower economic growth and a rebound in oil prices, two state refining sources said on Monday, threatening to add to a global fuel glut as the country exports what it cannot absorb.
Contraction in China’s diesel demand, a barometer of its industrial activity, underlines challenges faced by the world’s No.2 economy as growth drops to its slowest pace in 25 years.
Oil prices that were down as much as 60 per cent from a mid-2014 peak boosted China’s fuel demand in the first four months of the year, but the sources said diesel sales slumped last month while gasoline demand slowed with lower car sales.
Analysts say a rout in Chinese equities could curb appetite for goods considered luxuries such as cars and reduce fuel use.
“The recent drop in China’s equity market is of concern and acts as a downside risk to our China oil demand outlook,” said Suresh Sivanandam, principal analyst for refining and chemicals at Wood Mackenzie.
Chinese shares are down nearly a quarter from a seven-year high in mid-June, rebounding from a fall of more than 30 per cent that came as investors lost confidence in the nation’s stock exchanges.
Woodmac expects China’s diesel use to grow just 0.1 per cent in the second half this year versus 2.1 per cent in the first half. Gasoline demand growth could slow to 6.3 per cent from 8.8 per cent over the same period, the consultancy said.
One state refiner has seen a more than 10 per cent drop in diesel sales in June from a year ago, the refining sources said.
And if the economy does not improve, demand could shrink by 3-5 per cent this year, one said.
Beijing raised retail diesel prices three times since March to track a rebound in global crude prices, but cut them again in early June.
China’s diesel demand will remain weak due to much slower growth in the housing and manufacturing sector, Barclays analyst Chi Zhang said. “Demand growth is almost flat for June,” Zhang said, as he waited for inventory data that will give a clearer picture of fuel use.
The slow growth is expected to drive up diesel exports.
Beijing has already more than doubled the export quota volumes for diesel in the third quarter compared with the previous period. China is expected to ship out high volumes of diesel in July and August, a source familiar with the matter said.
“Storage (in China) is at maximum capacity,” the source said.
GASOLINE
China’s gasoline sales growth also slowed in June from the 8-9 per cent pace seen earlier this year, one of the Chinese refining sources said, leading to an average annual growth rate of 6-7 per cent this year.
Prices for German luxury cars have already tumbled while China’s automakers association cut its 2015 forecast for vehicle sales growth by more than half to 3 per cent following the stock market slump.
The falling demand and deteriorating margins, especially for gasoil, could prompt Chinese refiners to reduce run rates as well as increase fuel exports, adding to oversupply globally.
“Demand is not great and that’s why China’s (gasoil) exports have gone up a lot,” said a Beijing-based trader.
China’s refined products exports rose to 14.78 million tonnes in the first six months, up 5.3 per cent from a year ago, preliminary trade date released by China’s General Administration of Customs showed.
