December 29, 2016 / 9:22 AM / 7 months ago

China's diesel demand likely to rise ahead of Lunar New Year

3 Min Read

* Oct. implied diesel demand highest since March

* Demand up on higher construction activity, heating

* Stocks at record low

By Jessica Jaganathan

SINGAPORE, Dec 29 (Reuters) - China's diesel demand is likely to pick up pace ahead of the Lunar New Year as traders stock up barrels ahead of the festivities and as construction activity picks up in some areas, four trade sources said on Thursday.

Implied diesel demand in October in China, the world's second-largest oil user, rose to 3.4 million barrels per day, up 6.4 percent from September and 1.3 percent higher than the same time last year, according to Reuters calculations using official data.

That is the highest level since at least March this year with implied diesel demand rising in only three months so far this year, the data showed.

Demand for diesel in November to December is expected to be even higher, traders said.

"China is having many policies to boost the economy now, so demand will pick up a bit, but by how much is a question," said a source with a state-owned refiner.

China's economy looks set to hit its 6.5 percent to 7 percent growth target as increased government spending and increasing housing demand spur a construction boom.

Diesel is used to power trucks for industry and for construction.

First-quarter Chinese diesel demand may rise by 75,000 bpd from the year ago period, based on the industrial recovery, consultants JBC Energy said in a note on Thursday.

Demand is also picking up ahead of the Lunar New Year period as traders start to stockpile the fuel and as winter consumption of the fuel has increased for heating and back-up power generation, a second source with a state-owned refiner said.

"China has also been increasing the retail prices, so demand from traders is picking up as they start to fill up tanks," the source added. China will raise retail diesel prices by 95 yuan ($13.66) per tonne from Thursday, its third increase since Nov. 30.

China's diesel stocks at the end of November fell to a record low after refineries tempered production while they upgraded facilities to produce higher-quality fuels in order to meet stricter emissions limits that the country is introducing from Jan. 1.

Regulations introduced in September that imposed stronger penalties and ramped up inspections to prevent trucks being overloaded with goods also boosted demand for diesel, traders said.

"The trucks have to make more trips, so this consumes more diesel," a shipping source said. ($1 = 6.9532 Chinese yuan renminbi) (Reporting by Jessica Jaganathan; Editing by Christian Schmollinger)

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