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In rare move, Sinopec offers refineries bonus to export surplus diesel -sources
November 27, 2015 / 9:41 AM / in 2 years

In rare move, Sinopec offers refineries bonus to export surplus diesel -sources

* Sinopec refiners offered $37.60/T bonus for diesel exports
    * Refinery throughput to remain high to meet gasoline demand
    * Bonus scheme to cost Sinopec roughly $80 mln over 4 months

    By Chen Aizhu and Adam Rose
    BEIJING, Nov 27 (Reuters) - China's Sinopec Corp 
 is offering its subsidiary refineries big incentives
to export their diesel fuel, sources said, in a rare move that
reflects the top Asian refiner's deepening concerns about a
growing domestic glut.
    The internal bonus scheme marks the latest step by the
state-owned refiner to battle local oversupply of the industrial
fuel as slowing economic growth curbs diesel use in mining,
construction and transportation. 
    The company has maintained relatively high production in
order to feed growing domestic demand for kerosene and gasoline,
thus exacerbating the diesel surplus, oil sources say. Sinopec's
crude runs were up 1.4 percent in the first three quarters of
2015 compared with a year ago, according to corporate filings. 
    About a half-dozen of Sinopec's refineries are being offered
around 240 yuan ($37.60) for each tonne of diesel exported,
under a scheme that started in September and has been extended
to December, said two people familiar with the bonus plan. 
    That's an additional 6 percent on top of domestic pre-tax
wholesale prices, worth some $80 million over four months,
according to Reuters' calculations based on estimates of
Sinopec's exports.
    Sinopec declined to comment on the move. Most of its
refineries sell their products only into the domestic market.
    "Sinopec is anticipating China's robust gasoline demand
growth will sustain in 2016. To produce more gasoline means more
diesel output from refineries," said Gordon Kwan, head of oil
and gas research with Nomura in Hong Kong. 
    "Diesel demand in China will remain subdued, thus the
potential for diesel exports to rise further ahead."
    The payments are a tiny portion of the company's
$4.25-billion net profit in the first three quarters of the
year, and with refining profits up 34.3 percent, the company has
plenty of room for the export incentive, analysts said.
 
    Still the grants are relatively rare and are larger than
previous offerings, people with knowledge of the scheme said,
reflecting growing concerns about China's diesel inventories as
demand dips during the winter when construction work slows. 
    China's diesel exports jumped by 50 percent in the first 10
months of this year to about 129,000 barrels per day (bpd),
official data showed, roughly 4 percent of China's total diesel
consumption. 
    Shipments in September and October were particularly robust,
with September sales at the highest level since at least 2006, 
near 276,000 bpd, and easing slightly in October to 221,500 bpd,
customs data showed. 
    The growing overseas sales from Sinopec, representing
roughly 60 percent of China's diesel exports, comes as the
government prepares to allow smaller, independent refineries to
export refined fuel for the first time. 
    Authorities have also let state-run oil and chemicals trader
Sinochem begin to export fuel. 
    
    ($1 = 6.3883 Chinese yuan)
    (1 tonne = 7.46 barrels)

    
 (Reporting by Chen Aizhu and Adam Rose; Editing by Josephine
Mason and Tom Hogue)

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