Sinopec results show China oil demand still weak

* Sinopec Q1 refinery runs down 3.3 pct on yr, up 1.2 pct on quarter

* Sinopec fuel sales down 12.4 pct on yr, down 6.2 pct on quarter

* Sinopec joins PetroChina in major destocking

* Refinery output may recover more under favourable pricing

By Chen Aizhu

BEIJING, April 29 (Reuters) - Top Asian refiner Sinopec Corp's 3.3 percent cut in first-quarter refinery output has helped thin China's swelling fuel stocks, but a steep 12 percent fall in fuel sales points to still lacklustre fuel demand.

Sinopec Corp's (0386.HK) cut, which follows rival state giant PetroChina's steeper 15-percent output reduction, showed that the oil duopoly are trying to thin swollen inventories, amassed in the first three quarters of 2008 before the spread of the global economic crisis.

The joint destocking may have prepared refiners to lift production, as they already did in April according to a Reuters survey, especially as a new fuel pricing mechanism offers a decent processing margin.

But oil officials and analysts said it was premature to predict a firm rebound for fuel demand.

"Demand is still quite weak, judging from the double-digit fall in fuel sales of market dominator Sinopec," said Yan Kefeng of Cambridge Energy Research Associates.

He said the largely government spending-driven economic stimulus plan will take time to boost the end-user demand and maintains his forecast for Chinese fuel consumption to contract this year.

Fuel sales slowed again this week in southern Guangdong province, China's largest fuel consuming region, after a brief spike early in April.

"Sales are falling again. The sales climb earlier in the month was short-lived, spurred by the price hike," said a Sinopec fuel sales manager, referring to Beijing's official pump price increase on March 25 that analysts said spurred some restocking by independent oil dealers.

Sinopec, which supplies nearly half of the world's second-largest oil consumer, posted a 12 percent fall in total domestic sales of refined fuel at 26.43 million tonnes, though the decline on quarter slowed to 6.2 percent and local media reported last week that state oil firms' March sales posted double-digit growth over February.

In the January-March period, Sinopec processed 40.51 million tonnes, or 3.32 million barrels per day, 3.27 percent less than a year earlier, but the level was 1.2 percent above the last quarter of 2008, motivated by a rising refining margin as global crude steadied near $50 a barrel.

"The refining margin expanded to about $9/bbl. Sinopec is confident that its refining business, hurt by the margin clampdown last year by the government, could this year benefit from China's domestic fuel price adjustments to ensure reasonable profitability," Gordon Kwan, Hong Kong-based analyst with Mirae Research, wrote in a note to clients.

PETROCHINA CUTS DEEPER

PetroChina (0857.HK) revealed on Monday a much deeper 14.6 percent reduction in refinery runs, suggesting that the second-largest refiner, with most of its plants located in the economically lagging north and west, had a harder time than Sinopec, which dominates the southern and coastal regions.

And Sinopec's sharper fall in domestic fuel sales at 12.4 percent, versus PetroChina's 2.8 percent, may be evidence that the top Asian refiner has been a more aggressive exporter of fuels, of diesel in particular.

Sinopec's gasoline output rose 15 percent and kerosene was up 9.3 percent, while diesel fell 8.8 percent. Figures were in line with China's record new car sales and firm growth in air traffic, while diesel, used by factories and trucks, was the hardest hit by the economic crisis.

(For a detailed table of Sinopec's Q1 operational results, click [ID:nPEK69778])

Sinopec, also the country's second-largest crude producer, said on its website that first-quarter crude output edged up 0.61 percent at 10.4 million tonnes (853,000 bpd).

PetroChina, Asia's number-one oil and gas producer, however, has cut crude output by 5.7 percent, as oil's near $100 plunge from last July's peak has forced closure of the firm's many costly marginal fields. (tonne=7.3 barrels) (Reporting by Chen Aizhu, Jim Bai and Eadie Chen; Editing by Michael Urquhart)