China's apparent oil demand edged up a slim 0.7 percent in June, reversing the previous month's contraction but still underscoring signs of a weaker appetite for oil in the world's second-largest consumer. Crude and refined oil product imports slid last month versus June 2004, official data showed Monday, extending a months-long trend as state caps on pump prices for diesel and gasoline - set well below international levels - discouraged buying abroad.
China's oil demand normally rises in the summer because of extra gasoline needed to keep cars cool, and diesel and fuel oil used to power individual generators and back-up plants as the grid strains to keep air-conditioning on in homes and offices.
But strong hydropower and coal generation has sapped the need for oil to use in power plants this year, while retail price limits pushed processors to scale back sales in the loss-making domestic market, industry sources say.
"There is not as much demand ... this year, with the high rainfall and more transportation available to get coal to power plants," said Victor Shum at Purvin and Gertz in Singapore.
"On top of that, the continued price caps have meant that firms are essentially curbing supply to the domestic market, not allowing demand to be created," he added.
Reuters calculations based on official customs data showed June implied demand - net imports plus refinery output, but excluding inventory changes - edged up 0.7 percent from a year earlier, as tumbling product imports were offset by a rise in domestic processing. Demand in May contracted 4.1 percent.
The International Energy Agency earlier this month lowered its forecast for Chinese consumption growth this year by 100,000 bpd to 5.5 percent or 360,000 bpd - but still well above implied first half demand growth of only 2.6 percent.
It said government price caps were limiting demand and warned of a downside risk to its forecast of higher second-half growth, a major source of concern for traders counting on China's booming economy to drive up consumption and keep oil prices above $50.
Gross domestic product rose an annual 9.5 percent in the second quarter, but oil data has been far weaker this year, an anomaly some analysts blamed on an unseen inventory decline but others pinned on the pricing policy.
Beijing's increase in price caps at the end of June and again last weekend, over 10 percent in all, may beef up flagging consumption by encouraging refiners to sell domestically.
"The Chinese authorities now seem comfortable with raising retail prices every month, until margins are gradually restored," said Deborah White, senior energy analyst at SG Commodities.
"The result is likely to be a slowly-rising 'wedge' of demand growth keeping a floor under any price declines in international markets," she added.
A move last week to revalue China's yuan currency will also help ease pressure by effectively making dollar-denominated crude and oil products cheaper for Chinese buyers, although it was a moderate change and any impact will not be seen until August.
Net product imports in June recovered to 520,000 barrels per day from just 110,000 in May, but were still around a third below the same period of 2004.
Refiners had kept processing rates firm through June, but top coastal processors cut them 4 percent in July, a sign that losses were biting hard. The Chinese refining industry lost $337 million in the first five months of the year, state media said.
June shipments of fuel oil - which is not price capped and used mostly as feedstock for small refineries and in power plants - fell 19 percent from a year earlier to 2.55 million tonnes. Controlled power prices discouraged plants from firing up extra generators, while refiners also scaled back runs as their margins turned negative, leading to a 10 percent fall in demand.
Diesel demand was almost flat at 2.18 million bpd as an expected boost from a national power crunch did not appear.
Last year appetite for the fuel boomed as home-owners and businesses turned to diesel-powered individual generators to beat the country's worst power shortage in two decades and many analysts had expected a repeat this year.
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