Standby for higher diesel fuel prices in Australia.
China has shocked Asian energy markets by suspending diesel exports to ensure domestic supplies are adequate as demand for the fuel rises due to the ongoing power shortages across the country.
The move means a significant tightening of diesel supplies across Asia as China was a big exporter to Singapore, Vietnam and Hong Kong (shipments to Hong Kong won’t be affected).
Oil industry reports say the country shipped around 200,000 barrels of diesel a day into the region.
It means higher prices for Australian industrial users and miners, as well as for local motorists (diesel powered cars make up around 28% of sales at the moment each month).
Demand is likely to jump in the booming Asian region as China not only cuts supplies, but tops up its requirements by bidding against other consumers, such as Australian mining companies or Singaporean-based trading groups.
Russia last week imposed a high tax on petrol exports to try and keep a lid on domestic price rises and to ensure supplies are adequate. (Russia is also maintaining a ban on exports of wheat.)
China’s suspension of exports will apply to all areas, other than to Hong Kong and Macao, China’s top economic planning body, the The National Development and Reform Commission (NDRC), said in a statement issued late Friday.
The Commission also called for increased production of oil by-products and ordered dealers not to artificially raise the price of petro-chemicals through hoarding.
Chinese refiners have been exporting more and more diesel, petrol and other oil based products because of price controls in the domestic market, especially on diesel and petrol.
That’s despite the government allowing official prices of petrol and diesel to rise to record levels.
Domestic price rises have not kept pace with the rise in world oil prices (even though the have weakened in the past fortnight), meaning the refiners are losing money on each litre they sell into the local market.
In the past (in 2007-8) the government subsidised these losses in an attempt to keep domestic retail prices down, but shortages appeared across the country as consumers and retailers hoarded fuel when supplies ran short.
That seems to be the fear this time with the warning about hoarding (which we have also seen happen in the past few months with some foodstuffs like garlic, onions and some grains).
The notice came as China enters its peak period for diesel use due to high, seasonal demand from the agriculture and fishing sectors.
Power shortages have pushed up diesel demand as factories use diesel powered generators to maintain production.
And drought has cut hydro power supplies and forced more companies to use diesel.
Power shortages last year saw lots of companies install diesel generators to meet demand during blackouts.
Coal supplies remain problematic in some areas as the consolidation of privately-owned and poorly-run mines continues.
Transport and other links to the growing coal region in the north west of the country and the Mongolian region are poor and cutting supplies.
Coal prices have also not kept pace with prices in export markets, meaning producers follow the oil companies in diverting coal from the domestic market into the higher-priced export markets (over $US200 a tonne for spot shipments Australian thermal coal, up 40-60%, for example).
State-owned China Petrochemical Corp (Sinopec Group), the country’s biggest oil refiner by capacity, said on April 19 that it had suspended exports of oil products to guarantee domestic supply.
The NDRC has urged domestic oil refiners to increase imports of light oil, which is used to produce oil products.
China’s imports of oil products declined year-on-year 5.57% to 3.22 million tonnes in April, while the total imports in the first four months hit 14.25 million tonnes, up 18.3% year-on-year.
A total of 2.05 million tonnes of oil products were sold overseas in April, less than 2.57 million tonnes a year earlier and down about 20.5% over last month. Exports were 8.63 million tonnes in the first four months in 2011, down 9.2% on the same period of 2010.
