Diesel sales slide on weaker industrial activity
China's diesel demand is set to post its first fall in more than a decade this year, sources at the country's oil majors said, as a sputtering economy takes its toll on key industrial sectors.
Diesel, used to run trucks and tractors and generate power at construction and mining sites, is a bellwether of industrial activity. A fall in real consumption may signal China's economic slowdown is worse than official statistics indicate.
Recent economic statistics have boosted confidence that the world's second-biggest economy is regaining momentum after a spate of stimulus measures, although unexpected weakness in the services sector showed the recovery is still fragile.
Diesel sales by China Petroleum & Chemical Corp (Sinopec) and PetroChina Co Ltd, which together supply nearly 90 percent of China's market, are set to post an annual decline in 2014 following decreases in the first half, two sources with knowledge of the companies' fuel marketing told Reuters.
Weak domestic sales would force refiners to maintain hefty diesel exports, weighing on a stagnant Asian market and crimping the return for processing crude oil into diesel.
Diesel makes up about one-third of China's total oil demand.
PetroChina, the country's second-largest refiner, recorded a near 5 percent decline in domestic sales in the first half of 2014 and is likely to record a similar decline for the whole year, said a fuel marketing executive.
Sinopec, Asia's largest refiner, also looks poised to post a drop in diesel sales for 2014, having seen sales decline "quite a bit" in the first half, according to a company official.
Both sources requested anonymity as they were not authorized to speak to the media on sales figures.
"An outright fall in diesel sales is something I can't recall for many years," said the first executive. "Coal mining and construction activities are slowing, and so is transportation."
Real fuel demand in China is difficult to gauge as the world's second-largest oil user publishes production and import-export data but rarely gives information about fuel inventories.
Implied demand for diesel, which adds refinery crude throughput to net fuel imports but does not take account into inventory movements, rose 0.5 percent in the first half, according to Reuters calculations.
The drop in diesel demand has come as China, already the world's top energy consumer, tries to shift its economy away from an investment-led model to reduce overcapacity.
Banks have also tightened credit to curb investments in energy-intensive sectors such as cement, glass, coal and steel.
Dragged lower by weaker spending in oil and natural gas exploration as well as the iron ore and base metals sectors, China's fixed-asset investment growth slowed to 17.3 percent year-on-year in the first half of 2014 from 20.1 percent a year earlier, official data showed.
But shrinking diesel consumption, along with slackening coal demand, suggests that the state of China's key industrial sector may be gloomier than official statistics show.
First-half coal sales fell 2.3 percent to 1.73 billion metric tons, even though imports only rose 0.9 percent.
Slackening demand means fewer trucks are carrying coal from Inner Mongolia and Shanxi to the coastal cities.
The first executive said diesel consumption in northern China was the hardest hit, with some areas down 10 to 20 percent in the first half, while growth in the central and western parts of China was also losing momentum.
PetroChina reported in April that its diesel sales fell 15.4 percent in the first quarter.
Its next update on fuel sales will be in late August.
Consultancy IHS CERA has forecast China's diesel demand to fall 0.4 percent this year, the first decline since the research firm started tallying Chinese oil demand in 2002.
Chinese oil firms have also been trying to replace diesel in trucks and ships with liquefied natural gas. But experts said the displacement rate had been slower than expected since the start of the year as overall energy demand has slackened and the cost of natural gas has climbed.
IHS CERA estimated that inventory-adjusted diesel demand fell 1.8 million tons in the first half, while incremental displacement of diesel by natural gas was less than 410,000 tons.
Sinopec, which reported a 5.1 percent drop in diesel output in the first half of 2014, said its total refined fuel sales in the same period edged up 0.4 percent to 81.04 million tons.
It did not give a breakdown for diesel, gasoline and kerosene, but industry sources and CERA researcher Yan Kefeng said gasoline and kerosene sales in China both grew strongly in the first half, suggesting a solid fall in diesel sales.
Recent economic statistics have boosted confidence that the world's second-biggest economy is regaining momentum after a spate of stimulus measures, although unexpected weakness in the services sector showed the recovery is still fragile.
Diesel sales by China Petroleum & Chemical Corp (Sinopec) and PetroChina Co Ltd, which together supply nearly 90 percent of China's market, are set to post an annual decline in 2014 following decreases in the first half, two sources with knowledge of the companies' fuel marketing told Reuters.
Weak domestic sales would force refiners to maintain hefty diesel exports, weighing on a stagnant Asian market and crimping the return for processing crude oil into diesel.
Diesel makes up about one-third of China's total oil demand.
PetroChina, the country's second-largest refiner, recorded a near 5 percent decline in domestic sales in the first half of 2014 and is likely to record a similar decline for the whole year, said a fuel marketing executive.
Sinopec, Asia's largest refiner, also looks poised to post a drop in diesel sales for 2014, having seen sales decline "quite a bit" in the first half, according to a company official.
Both sources requested anonymity as they were not authorized to speak to the media on sales figures.
"An outright fall in diesel sales is something I can't recall for many years," said the first executive. "Coal mining and construction activities are slowing, and so is transportation."
Real fuel demand in China is difficult to gauge as the world's second-largest oil user publishes production and import-export data but rarely gives information about fuel inventories.
Implied demand for diesel, which adds refinery crude throughput to net fuel imports but does not take account into inventory movements, rose 0.5 percent in the first half, according to Reuters calculations.
The drop in diesel demand has come as China, already the world's top energy consumer, tries to shift its economy away from an investment-led model to reduce overcapacity.
Banks have also tightened credit to curb investments in energy-intensive sectors such as cement, glass, coal and steel.
Dragged lower by weaker spending in oil and natural gas exploration as well as the iron ore and base metals sectors, China's fixed-asset investment growth slowed to 17.3 percent year-on-year in the first half of 2014 from 20.1 percent a year earlier, official data showed.
But shrinking diesel consumption, along with slackening coal demand, suggests that the state of China's key industrial sector may be gloomier than official statistics show.
First-half coal sales fell 2.3 percent to 1.73 billion metric tons, even though imports only rose 0.9 percent.
Slackening demand means fewer trucks are carrying coal from Inner Mongolia and Shanxi to the coastal cities.
The first executive said diesel consumption in northern China was the hardest hit, with some areas down 10 to 20 percent in the first half, while growth in the central and western parts of China was also losing momentum.
PetroChina reported in April that its diesel sales fell 15.4 percent in the first quarter.
Its next update on fuel sales will be in late August.
Consultancy IHS CERA has forecast China's diesel demand to fall 0.4 percent this year, the first decline since the research firm started tallying Chinese oil demand in 2002.
Chinese oil firms have also been trying to replace diesel in trucks and ships with liquefied natural gas. But experts said the displacement rate had been slower than expected since the start of the year as overall energy demand has slackened and the cost of natural gas has climbed.
IHS CERA estimated that inventory-adjusted diesel demand fell 1.8 million tons in the first half, while incremental displacement of diesel by natural gas was less than 410,000 tons.
Sinopec, which reported a 5.1 percent drop in diesel output in the first half of 2014, said its total refined fuel sales in the same period edged up 0.4 percent to 81.04 million tons.
It did not give a breakdown for diesel, gasoline and kerosene, but industry sources and CERA researcher Yan Kefeng said gasoline and kerosene sales in China both grew strongly in the first half, suggesting a solid fall in diesel sales.
