China Petrochemical Corp. (Sinopec) has decided to export 500,000 metric tons of diesel during the second half of this year, worsening the regional glut of the product.
The announcement came just as the Asian market was struggling to cope with a supply glut against a backdrop of thin demand.
Instead of helping to absorb the Asian cargoes, China has imposed a ban on diesel imports. It also imposed a fishing ban in the South China, East China, and Bohai seas, which has greatly reduced domestic diesel consumption, thereby contributing to the supply glut.
China is short of diesel and used to import about 6 million tons/year before it banned diesel imports last September because of rampant smuggling. With the ban remaining in force, Chinese refineries have gone all out this year in order to boost diesel production to meet domestic needs.
But the fishing ban-from June through August in the South China Sea and September through November in the East China Sea and Bohai Sea-has greatly reduced diesel consumption. Diesel is a major fuel for China 's fishing industry. The ban was introduced mainly to preserve fish stocks. Fishing boats are also widely known as a popular means for smuggling international diesel cargoes into China in small lots.
Contributing to glut
Another major reason for China's diesel supply overhang is that Chinese traders all began selling their diesel stocks in May after China's National People's Congress (NPC), the country's legislative body, refused to pass a fuel tax for diesel and gasoline in late April. Chinese traders had been building up diesel stocks prior to the congressional action in order to offset an expected rise in diesel prices caused by the fuel tax, which was intended to go into force in June.
However, NPC standing committee members refused to pass the tax on the grounds that it would cause a financial burden for farmers, who mostly use oil products for non-transportation purposes. The rationale for the new tax was to replace highway fees collected by local authorities.
The proposal calls for levying a tax of 1,176 yuan/ton for diesel and 1,666 yuan/ton for gasoline.
