China Aug crude imports fall to lowest since Jan

[HenryTo]

Unlike Americans, the Chinese actually witnessed a genuine shortage in crude oil products - as refiners either cut back on oil purchases or resold their inventory onto the international markets. The Chinese government is reforming the price mechanism of gasoline as we speak. Once domestic prices are allowed to rise, then we should see a resurgence in oil imports again from China.
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Monday September 12, 6:10 PM
China Aug crude imports fall to lowest since Jan
SINGAPORE, Sept 12 (Reuters) - China's crude oil imports fell to their lowest level in eight months in August to stand 6.1 percent below last year, customs data showed on Monday, as refiners cut back purchases amid heavy losses on domestic sales.

The sharp fall shows the revaluation of the yuan currency and a late-July rise in domestic prices failed to adequately shore up refiners' balance sheets to encourage maximum operations, analysts and officials said.

August imports came to 8.76 million tonnes (2.06 million barrels per day), the lowest single-month level since January, and were down about 550,000 bpd versus July. The drop has been expected by many oil traders after a major Chinese trading firm was seen reselling crude cargoes this summer.

"How can China import expensive crude and sell products at depressed domestic prices? said a Chinese official from a refinery owned by oil giant Sinopec .

"Pump prices are kept artificially low to prevent social unrest. This is a nagging problem."

The steep fall brought January-August cumulative imports to 83.12 million tonnes (2.5 million bpd), up only 3.9 percent against the same period of 2004. Monthly import levels tend to be volatile due to the nature of supertanker shipments.

Crude oil imports, which now make up more than 40 percent of Chinese refiners' diets, soared 35 percent last year.

Chinese oil trader Unipec, an arm of Sinopec, resold more than 3 million barrels of previously purchased August crude earlier this summer, due to reduced refinery demand and bulging storage tanks, oil traders said in July.

Many coastal refineries had cut their operating rates in August despite peak oil demand in summer, as their refining losses deepened, Chinese officials said.

Independent, small-scale plants were hit hardest, with many in southern Guangdong forced to shut down and those in eastern Shandong slashing run rates to under 30 percent, traders say.

"It resulted in a situation where oil supplies could not even match up to demand. People were desperate for supplies and the supply crunch was the worst in Guangdong," said the official, referring to pump queues and shortages in southern China.

GOVERNMENT PRESSURE

Chinese refineries have since succumbed to government pressure to step up domestic supplies, with most of them raising crude processing rates in September despite hefty losses, Chinese officials have said. This is likely to mean a rebound in crude imports.

They have also already slashed gasoline exports planned for September, trade sources have said.

The switch followed Beijing's decision to temporarily suspend tax breaks on exported fuels such as gasoline and naphtha, reducing the incentive to export extra fuels but failing to address the underlying problem of pricing discrepancies.

Beijing revalued the yuan up by 2.1 percent and raised pump prices by about 6 percent in late July, both boosting profits of import-dependent refiners, but officials say they did not go far enough.

"There is a need to change the pricing mechanism in domestic prices. Otherwise, China will import oil products on a hand-to-mouth basis," another official said.

Chinese oil demand, which soared 15.3 percent last year, is expected to rise by 3.4 percent in 2005, much slower than initially forecast, the International Energy Agency (IEA) said.

Imports of oil products -- mostly fuel oil and some diesel -- stood at 2.36 million tonnes in August, a hair lower than July's 2.42 million tonnes, customs data showed.

Imports were down 11.7 percent versus the same month a year ago, although year-to-date imports of 20.48 million tonnes were 19.1 percent below 2004.

Oil product imports have slumped this year as refiners cut back international purchases to limit losses on local sales and more abundant coal-fired and hydropower generation curb the need to crank up incremental oil-fired capacity.

The data did not include any figures on oil products or crude imports, making it impossible to calculate net fuel imports.