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China unlikely to suffer diesel shortage in 2012
By Janet Kong |
June 5, 2012, Tuesday
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Print Edition
Print Edition
CHINA'S average demand for diesel in the first four months of 2012 rose only 2.2 percent year on year, far below its year-earlier growth of 9.5 percent. Diesel inventory also hit a historical high over the same timeframe.
Furthermore, from June oil producers plan to suspend bonuses for diesel production in excess of targets, while continuing to cut prices, both of which reflect the current weak demand.
Sluggish demand in the manufacturing, transportation and agricultural sectors accounts for the weak demand for diesel. These three sectors represent almost 80 percent of China's total diesel demand.
The sharp slowdown in the Chinese economy so far this year has had the foremost impact on the manufacturing sector, and caused the transportation sector's growth to remain subdued and diesel demand from agricultural machinery to stay weak.
Mild recovery
Looking ahead, diesel output growth could outpace the demand recovery, meaning a nationwide supply deficit will be impossible in the second half of 2012.
China's average diesel demand in 2012 may remain soft at 3.50 million barrels per day, a year-on-year increase of only 2.8 percent, albeit with a possible mild recovery in the second half.
On the supply side, diesel production will likely rise in the second half because of a sharp increase in crude oil throughput as new refining units come on stream and refineries restart production following maintenance in the May-June period.
Thus the high output can meet the demands of every sector, and a moderate oversupply is even possible in the second half.
We believe 2012's tightest supply conditions are already behind us and diesel imports will remain subdued. China suffered the tightest supply conditions in the March-April period, but imports did not rise significantly because of high inventory.
Supply may tighten again between July and September, a traditional peak season for diesel consumption. That said demand will be largely met in our view.
In addition, China's diesel imports should remain weak due to seasonality-induced de-stocking. In the fourth quarter of 2012, potential oversupply is set to increase diesel exports.
Furthermore, from June oil producers plan to suspend bonuses for diesel production in excess of targets, while continuing to cut prices, both of which reflect the current weak demand.
Sluggish demand in the manufacturing, transportation and agricultural sectors accounts for the weak demand for diesel. These three sectors represent almost 80 percent of China's total diesel demand.
The sharp slowdown in the Chinese economy so far this year has had the foremost impact on the manufacturing sector, and caused the transportation sector's growth to remain subdued and diesel demand from agricultural machinery to stay weak.
Mild recovery
Looking ahead, diesel output growth could outpace the demand recovery, meaning a nationwide supply deficit will be impossible in the second half of 2012.
China's average diesel demand in 2012 may remain soft at 3.50 million barrels per day, a year-on-year increase of only 2.8 percent, albeit with a possible mild recovery in the second half.
On the supply side, diesel production will likely rise in the second half because of a sharp increase in crude oil throughput as new refining units come on stream and refineries restart production following maintenance in the May-June period.
Thus the high output can meet the demands of every sector, and a moderate oversupply is even possible in the second half.
We believe 2012's tightest supply conditions are already behind us and diesel imports will remain subdued. China suffered the tightest supply conditions in the March-April period, but imports did not rise significantly because of high inventory.
Supply may tighten again between July and September, a traditional peak season for diesel consumption. That said demand will be largely met in our view.
In addition, China's diesel imports should remain weak due to seasonality-induced de-stocking. In the fourth quarter of 2012, potential oversupply is set to increase diesel exports.
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