By Nidaa Bakhsh
Nov. 13 (Bloomberg) -- A slowdown in demand for fuel in China may accelerate, cutting profits for refiners in Europe because they will export less to Asia, according to Sanford C. Bernstein & Co.
``We believe there is a significant risk of a more rapid slowdown in China's appetite for diesel than many expect,'' London-based Bernstein analyst Neil McMahon said in a report dated Nov. 11. ``This, in our view, is a key risk to European refining margins in 2009.''
A slowdown in China's economic activity means less use of diesel by commercial vehicles such as trucks transporting goods from factories, according to the report. McMahon expects China's diesel demand growth to fall to five percent next year from an average of nine percent over the past three years. Imports have fallen after a surge in demand for diesel before the Olympic Games in August.
Additional global refining capacity may exacerbate the oversupply of diesel, Bernstein said. Reliance Industries Ltd.'s new 580,000-barrel-a-day Jamnagar refinery in India is expected to add 250,000 barrels of diesel export capacity in 2009, according to the report.
Spare capacity of diesel worldwide will rise to 2.4 million barrels a day next year from 1.7 million barrels a day in 2008, the largest increase since 2005, the report said.
Refinery utilization rates for diesel are expected to drop to 90 percent over the next two years from 93.5 percent this year, McMahon said. That compares to an operating rate for gasoline below 90 percent over the next five years versus 92.5 percent this year, he said.
To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net
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