China's diesel near highs on hopes for another hike

SINGAPORE, April 7 (Reuters) China's wholesale diesel is seen holding near record highs in coming weeks on market speculation that Beijing would soon announce another price rise after the modest hike two weeks ago, officials said on Friday.

Seasonal demand in the world's second-largest oil consumer has kicked in as construction works are in full swing during the warmer weather and farmers start ploughing fields for spring sowing, keeping prices aloft.

Wholesale diesel -- quotes by oil majors to users and independent dealers -- was at 5,150-5,260 yuan (4-8) a tonne, slightly off a peak seen two weeks ago but still 5-7 percent above the government-set retail price ceiling. This reflected market hopes for another price rise in that range.

''The (March 26) increase was too small. The market is hoping for another one as soon as April or May, as the government said it will implement the subsidies,'' said a Sinopec Corp. marketing official from eastern China.

China on March 26 raised retail diesel and gasoline prices by 3 and 5 percent, respectively, the first hike in eight months, bringing its total increase to about 20 percent since the start of 2005, but still lagging global crude gains of some 40 percent.

Unlike previous price adjustments since 1998, Beijing introduced last month a series of subsidies to shield low-income peasants and sectors such as forestry and fishing from higher fuel costs.

Beijing also imposed a landmark windfall tax from April 1 on its oil firms for their more profitable crude oil sales business, to use the fund to subsidise weaker consumers, experts have said.

These built-in relief mechanisms could pave the way for future price increases, which would continue to be gradual but more frequent, industry officials have said.

''Some level of stockpiling by end users is continuing,'' said a Sinopec official in southern Guangdong province, China's export centre and largest energy consumer by region, referring to consumers' anxieties over possible future increases.

Supply is also growing as refineries are set to raise production this month as margins improve after a 6 percent increase in ex-refinery prices for the main fuels, allowing China to keep shunning costly diesel imports.

GASOLINE UNDETERRED Sinopec's marketing officials said the 5 percent increase in gasoline pump prices, which left Chinese gasoline still about half the rates in Singapore or New Delhi, were too small to curtail demand.

Wholesale rates of benchmark 90-octane gasoline held firm at 5,400-5,500 yuan a tonne on the booming east coast.

Gasoline use is growing steadily as the number of cars grow rapidly. In February alone, 344,500 new cars hit the road, up 61 percent over a year earlier and following a 73 percent rally in January.

Economic planners want to use higher prices to curb runaway petrol demand, but are avoiding drastic increases for fear of hurting car makers, or upsetting vocal urban groups such as taxi drivers.

On top of raising the fuel cost, Beijing has started levying heftier taxes for bigger-engine cars to save energy.

REUTERS RA ND1350