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China turns petrol importer

China turns petrol importer

Beijing: China's refinery production in May fell from a year ago for the first time in five years, helping turn the world's number-two consumer into a net petrol importer for the first time ever, data gathered by Reuters showed this week. State-owned energy majors Sinopec  and PetroChina are dramatically stepping up fuel imports and cutting back domestic refinery runs after tax cuts by Beijing made buying gasoline and diesel from international markets a better bargain than making it domestically.
While they face losses either way due to Beijing's refusal to allow domestic motor fuel prices to rise in line with global markets, the losses are minimised by importing fuel.
"The companies just aren't willing to refine with losses like this," said Wu Jun, analyst at futures firm CIFCO in Shanghai.
"If they refine themselves they can't get so many subsidies, but if they import, even though it is more expensive, they can get more money from the government."
Refinery production slipped 1.1 percent in May to 27.78 million tonnes (6.54 million barrels per day), data from the National Bureau of Statistics showed on Monday.
The last time refinery runs were down from a year earlier was 2003, when efforts to halt the spread of the deadly SARS virus brought much of China to a standstill and crippled its economy.
The surge in motor fuel imports has helped drive up prices and offset a decline in demand from the United States.
Crude oil climbed over $130 for the first time last month, deepening losses that refiners face by selling their fuel into a market where pump prices have risen only once in the past two years, a 10 percent increase last November.
But refiners are also under intense pressure to keep oil supplies flowing ahead of the Olympics, and in recent years have never failed to notch up an overall increase in refinery runs as Sinopec and PetroChina race to expand capacity to meet demand.
The devastating Sichuan earthquake, which briefly shut some plants and caused the suspension of a key pipeline, contributed to the decline, as did a strong baseline from May 2007. But major refineries had already planned a 3 percent cutback for the month.
In addition many of the independent refineries that provide around 20 percent of China's capacity have been mothballed, but most of them do not show up in official statistics -- meaning shortages could be worse than figures suggest.
The lacklustre processing rates, and pressure from Beijing to prioritise diesel production, likely contributed to record gasoline shipments and China's debut as a net importer.
The country bought 338,572 tonnes of gasoline from abroad, customs data showed, while exports were 160,000 tonnes. Diesel imports of 700,000 tonnes were the third highest on record, and fuel oil imports hit a ten-month high of 2.86 million tonnes.
Beijing has offered value-added tax rebates on most imported diesel and gasoline to try and tempt its oil firms to make up for the performance of refineries that now face feedstock costs over $50 per barrel above break-even levels.
Already the world's number two oil consumer and number three importer, the country's leaders are highly sensitive about their economic growth being fingered as a factor behind high prices.
But new capacity expected to come on line in the second half of 2008 across the region, including in neighbouring India, means that China's growing reliance on foreign refiners shouldn't roil traders too much, analysts said.
"I'm sure it will worry some people but all in all one needs to look at the overall petroleum input requirements by China," said Victor Shum at Purvin & Gertz in Singapore.
"We have crude runs coming down as product imports increase."
The most obvious solution to China's supply woes would be a rise in oil product prices, which were last raised in November, but leaders have pledged not to act until they can tame inflation that in April was hovering near the highest in over a decade." [17/6/08]


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