August 20, 2008 / 1:38 PM / 11 years ago

Asia diesel demand boom loses some steam

SINGAPORE (Reuters) - Asia is seeing a slowdown in diesel demand among major buyers China, Indonesia and Vietnam, endangering the boom that has propelled oil prices to record highs this year.

An attendant holds a gas pump in the northeastern Indian city of Siliguri August 5, 2008. REUTERS/Rupak De Chowdhuri

Chinese state oil refiners Sinopec Corp (0386.HK) and PetroChina (0857.HK) will suspend diesel imports next month, having built up stocks to cover for the Olympics.

In Southeast Asia, Indonesian state oil company Pertamina halved its diesel requirements sought via tender to 600,000 barrels in September versus August levels, while high inventories in Vietnam are also helping to meet demand.

Indonesia and Vietnam are the region’s top diesel buyers, while China became a major importer since last October with a monthly average of 572,000 tonnes up to July.

Beijing wants to ensure last winter’s fuel crisis will not repeat this summer when China shows off its fast-expanding economic might.

“The pace of demand growth is easing a bit. But it’s far from being over. You need a full-bloom recession to see an end to the diesel demand boom in Asia,” said Michael Wittner, global head of oil research at Societe Generale.

China’s exit from regional markets may have also led to the recent pull-back in global crude prices to around $116 a barrel, just as its voracious appetite helped drive up prices to records near $150 in mid-July.

The country’s August imports of diesel were forecast to hit 530,000 tonnes, down from the all-time high of 970,000 tonnes officially logged for July imports.


A post-Olympics demand lull partly contributed to ample supplies in China, the world’s second-biggest energy user.

“They may have overstocked in order to ensure adequate supplies for the Olympics. Both companies were mandated in May to increase the amount held in the reserves ,” said Simon Wardell, a London-based analyst from Global Insight.

“It looks like they are quite successful in this.”

Diesel usage has been lower during the Games, as factories were shut to clear the air for the athletes.

There were also signs that China’s worst power crisis in four years is easing, with top thermal power plants in Shanxi province, a major aluminum producer, resuming operations thanks to rising coal supplies.

The Asian market for diesel — used for transportation, utilities and industries — is feeling the pangs of lower demand from the dominant buyers. The benchmark 0.5 percent grade slumped to a discount of $4.20 a barrel on Wednesday, the lowest on record.

And supplies are also increasing as new refineries and upgraded plants come onstream in Asia this year.

But there may still be life yet to the diesel boom.

Indian diesel demand may grow by 15 percent this year — its fastest clip in a decade — with little sign of easing soon, as more firms and homeowners use it to generate emergency power supply.

China’s central bank is also confident that the world’s fourth-largest economy is likely to keep its momentum in the second half of the year after growing 10.4 percent in the first six months, thanks to urbanization that eclipses weakening global demand.

Diesel consumption may also recover in Indonesia during October when the country celebrates Eid al-Fitri to mark the end of the fasting month, when many Indonesians return to their villages. Southeast Asia’s biggest economy expects to grow by 6.2-6.4 percent this year.

And the Vietnamese government has raised 2009 GDP growth target to 7-8 percent, while aiming to rein in inflation to single digits, at a time of declining fuel prices.

Editing by Ramthan Hussain

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