UPDATE 1-China's Sinopec to resume large diesel exports with Q4 quota
* Sinopec gets Q4 diesel export quota of more than 1 mln T -sources
* Exports likely to cause slump in diesel processing margins
* Reduced demand, higher India exports add to Asia supply glut (Adds impact on processing margins and supply, trader comments, details on PetroChina export quota)
By Jessica Jaganathan
SINGAPORE, Sept 16 (Reuters) - China's top refiner Sinopec Corp is expected to resume high-volume diesel exports after Beijing approved a quota for the company to export more than 1 million tonnes in the fourth quarter, industry sources said on Monday.
Sinopec could export more than it did in the first quarter of the year, when China's stepped up diesel exports caused processing margins for the oil product to dive to their lowest in more than two years.
The exports could give rise to another diesel supply glut in Asia that would pressure margins again. Demand for the industrial and transport fuel has already dropped due to an economic slowdown in Asia exacerbated by a recent rout in emerging market currencies, traders added.
China, which became a net diesel exporter in mid-2012, controls shipments of diesel by issuing quarterly export quotas to a few state-run traders to ensure adequate domestic supply.
Beijing has approved fourth-quarter export quotas for Sinopec and the country's second largest refiner PetroChina , sources close to the matter said.
Sinopec's approved volumes are more than 1 million tonnes for the quarter, one of the sources said, declining to give specific numbers.
Traders said the approved volumes are about 1.2 million tonnes for the fourth quarter, or about 400,000 tonnes each month. This could not be confirmed with Sinopec.
PetroChina has also received a quota to export diesel, with its volumes slightly lower than Sinopec's, a second source said. PetroChina's volumes also could not be confirmed.
China exported about 1.05 million tonnes of diesel in the first quarter, according to official customs figures. Volumes dropped to about 690,000 tonnes in the second quarter after refiners used up government-issued quotas controlling sales for the first half of the year.
Third-quarter volumes are expected to show a sharp decline from the first two quarters. Sinopec exported only about 50,000 tonnes of diesel in August and none in July, traders said.
Domestic demand usually drops in the fourth quarter as agricultural demand for gasoil falls during China's winter. That is probably what prompted the government to approve higher volumes for the two state companies, the traders said.
HIT ON DIESEL MARGINS
The increased diesel quota could hit diesel margins, and in turn refinery profits, as the industrial fuel makes up 30 to 40 percent of production, traders said.
The Asian gasoil margins dipped to a nearly three-month low of about $16 a barrel above Dubai crude in late August, Reuters data showed.
Key diesel importers such as Indonesia and Vietnam have curbed imports of the fuel for most of the year due to reduced domestic demand and high inventory.
India also stepped up diesel exports from August due to reduced domestic demand and a weaker currency, while a new refinery in Jubail, Saudi Arabia, is expected to add to Asia's diesel surplus.
"We are quite bearish about the refinery margins in the fourth quarter because of the potential increase in Chinese diesel exports," a source with a North Asian refiner said. (Reporting by Jessica Jaganathan; Editing by Tom Hogue)