China diesel squeeze persists as oil tops $93

BEIJING Oct 29 (Reuters) - China's worst diesel rationing in four years may last several more weeks as record oil prices choke output from independent refineries and the top suppliers show no rush to top up imports, industry officials said on Monday.

Although China's big state refiners have made minor cuts in output to trim deepening losses, lower production from small refineries -- supplying up to 15 percent of the world's second-larget oil market -- has triggered a squeeze on supplies, and may take weeks if not months to recover.

"We have been working all the weekends this month to sort out the shortage. We are really worried," a sales official with top refiner Sinopec Corp (0386.HK) told Reuters.

"The part of small refineries is the main gap. We have not yet seen significant improvement in supplies," the official said.

China's independent plants, owned by local governments or private businesses, have either cut production deeply or halted operations altogether as they face losses from processing costly crude or fuel oil into products such as diesel and gasoline, the price of which is kept low by Beijing.

China last raised gasoline and diesel pump prices 17 months ago, and has said it will not increase regulated prices this year in order to keep a lid on inflation, now near a decade high.

Asian benchmark fuel oil FO180-SIN, the most common feedstock for these small plants also called "teapot", has roared to a record above $500 per tonne, an 80 percent surge so far this year.

"How can they survive at these prices?" said a Beijing-based trader close to some of these plants.

Service stations at China's financial hub Shanghai were also limiting diesel supply to trucks at about 40 litres per visit, a local newspaper reported on Monday, the latest to join a string of coastal provinces including Zhejiang, Jiangsu, Fujian and Guangdong in China's worst shortage since summer of 2003.

Industry officials said that China may have to step up imports further to ease the supply squeeze, but top refiner Sinopec -- also the country's leading fuel importer -- is not rushing to top up loss-making imports.

"We are still waiting for further direction (from Beijing headquarters) to place new orders," said a trader with Sinopec, which has so far bought 60,000 tonnes of diesel, or half its planned volume for November.

Its domestic rival PetroChina (0857.HK) has so far held off making any imports for November, citing steep losses for such business as international prices stood about a quarter higher than the domestic market.

China's erratic buying can roil global diesel markets, such as in late 2004, when imports suddenly surged to a record high of 550,000 tonnes a month before dropping back to less than 30,000 tonnes a month for most of 2005.