China said on Monday that it would start building state reserves of refined oil products such as petrol and diesel, to diversify strategic stockpiles away from unrefined crude oil in a move that mirrors Europe’s policy.
Beijing is using low commodities prices and the fact that companies have high inventories, both in China and abroad, as a chance to increase its strategic reserves of raw materials.
China should “boost reserves of oil products and fertiliser and thus help [refining] companies lower inventory”, the State Council said in a statement.
The announcement, one of a series of industry-specific plans outlining the use of Beijing’s Rmb4,000bn ($586bn, €434bn, £383bn) three-year stimulus package, also included a pledge to replace inefficient, low-end petrochemical production capacity. The State Council said it aimed to lift China’s annual refining capacity to 405m tonnes of crude oil in 2011, up 18 per cent from 2007.
China’s decision comes only months after the country started building strategic crude oil reserves for the first time. Europe has maintained strategic stockpiles of refined oil products for the past three decades, while the US has only strategic reserves of crude oil.
By maintaining stockpiles of both crude oil and refined products, Beijing’s strategic reserves will gain flexibility, being able to respond both to a disruption in oil supplies and also, crucially, to any problems arising in the country’s refineries.
The US was forced in 2005 to tap Europe’s reserves after two hurricanes damaged a large chunk of the US Gulf of Mexico refining capacity, making its strategic crude oil reserve useless.
China’s fuel imports and overall refining production jumped year on year in March, which analysts see as a sign that China has already started building reserves of refined oil products. “This is an after-the-fact announcement,” said Gordon Kwan, an analyst at Mirae Asset Management in Hong Kong.
China’s two big state-owned refiners, PetroChina and Sinopec, are seen as the biggest winners of the plan as they will be able to sell their swollen inventories to the government.
The announcement pushed up A-shares yesterday afternoon, reversing an earlier drop in the Shanghai market.
Additional reporting by Javier Blas
