Sinopec plans 500,000 ton Jan. diesel imports

BEIJING (Reuters) -- China's Sinopec Corp. plans record diesel imports of 500,000 tons in January to help cover domestic shortages, after Beijing scrapped a key import tariff, a company-owned paper reported on Tuesday.

The tentative plan comes on top of 423,000 tons of diesel imports in December and another 287,000 tons in November as Beijing struggles to stem persistent diesel rationing and supply shortfalls, the China Petrochemical News said.

December crude runs at the company, Asia's top refiner, rose 8 percent from a year earlier to 14.6 million tons, the report said, even though a yawning gap between international crude markets and state-set fuel prices makes processing unprofitable.

Sinopec's total fourth quarter runs hit 42.5 million tons, 500,000 tons more than planned.

China in October faced its worst fuel crisis in four years, as refiners retreated from the loss-making market, forcing Beijing to raise prices 10 percent in November to try and get diesel flowing through dry pumps.

It also called on state-owned majors to remember their social responsibility to keep markets supplied.

Although a price gap remains, Sinopec and rival PetroChina have stepped up their efforts to supply the local market after the government recently cut import tariffs and promised to help compensate for their refining losses.

With international crude stuck over $90 a barrel, but reluctant to make another unpopular increase in fuel rates, the government instead opted to eliminate the 17 percent value added tax (VAT) charged on imports, sources told Reuters last week.

The four-month suspension was an unexpected fillip for refiners who rushed to the international market to secure supplies, boosting already-high imports.

Sinopec and PetroChina had been forced into global markets to fill the autumn supply gap, because November's price increase was not enough to tempt small independent refiners -- estimated to account for 15 percent of China's capacity -- to boost output.

Together they had bought a record 823,000 tons, or 200,000 bpd, of diesel for delivery in December, industry sources had told Reuters, and another 540,000 tons for January, with more likely on the way.

------------------------------------ Prices still key

But an industry association warned last week that China may again experience a fuel shortage in 2008 if Beijing maintains a tight lid on domestic oil prices, and plant safety could suffer.

""If refined oil prices are not freed up and crude prices stay high, private refineries will continue to stand and watch, leaving the supply burden on two state companies,"" the China Petroleum and Chemical Industry Association said.

Even running full throttle, Sinopec and PetroChina will not be able to fully meet China's demand until two big new refineries come on-stream in the second half of 2008, analysts say.

The spike in winter diesel demand is partly due to modest seasonal use for heating and back-up power generation.

But analysts warn that even as that effect fades, companies may need to buy extra fuel for industrial use and to stockpile ahead of the summer Olympics, adding to the import pull.

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