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S.China drivers fret after hike, diesel queues ease

(Reuters)
Updated: 2006-05-25 16:18

Shortages of diesel that have plagued southeast China in recent months are easing after a steep rise in state-set fuel costs this week, but grumbling drivers suggested demand could suffer.

Vehicles are lined up to be fueled at a gas station in Beijing on the night of May 23, 2006. Most gas stations in the city were flooded with cars as news went out that fuel price was to be increased. [cnsphoto]

"We'll try to drive less now, and combine trips. Fortunately it's not a large part of the business," said Ye Mujun, who runs a clothing company in Shekou, at the edge of booming Shenzhen.

Chinese prices for diesel and gasoline have been held so far below world markets that previous increases over the last two years have had little impact on drivers' appetite for fuel.

In some areas past rises in the state-set caps even boosted consumption because refiners, who were losing money on every barrel of oil they processed and stifled supplies to domestic markets, increased the flow of fuel.

But on Wednesday retail prices of gasoline and diesel climbed 500 yuan ($62.37) per tonne or 5 cents per litre, up 9.6 and 11.1 percent, one of the largest rises in recent years

Just two months after a smaller hike disappointed refiners and wholesalers, the dramatic move was too much for some drivers.

Some businesses which cannot cut back are watching the price rise eat into margins instead, leaving them with less cash for the domestic consumption Beijing hopes will eventually become a bigger portion of national growth.

"It's too expensive. We're spending 30 to 40 yuan a day now on fuel and it cuts into earnings," said tofu maker Zhang Feng, who delivers the popular soya bean food in a tiny van she and her partners have owned since 2000.

"But we have no choice -- we have to run all over the city, and we can't do it on foot," she added.

Others who cannot cut back on driving are thinking of creative ways to cut costs.

"The company has brought in some policies to compensate, like banning us from driving on toll highways," said a man surnamed Wang, filling up a sleek new Buick.

DIESEL DROUGHT ENDS

One group of drivers likely to be pleased by the rises are those behind the wheels of diesel-powered trucks. In recent months they have been forced to queue for up to one or two hours to fill up as diesel shortages spread across the southeast.

At independent operators such as the Sihai service station, where a large professionally printed sign warns that there is no diesel, pumps have been dry since the end of last year.

And even for stations affiliated to top refiner Sinopec Corp , whose shares rallied ahead of the price hike, diesel supplies have been tight. Higher prices mean refiners are likely to open their tanks again.

"The last two days have been better. Recently we've had queues over a kilometre long. When that happens we sell out in two or three hours," said Wang Juqi, the manager of a Sinopec station near Shenzhen University.

Beijing has been particularly reluctant to raise diesel prices because the fuel is used by hundreds of millions of peasants to power agricultural equipment, while gasoline is largely consumed by more affluent urbanites.

And despite higher prices and a new tax on gas-guzzling cars, many of China's emerging middle class who can afford to buy a car are too attached to their vehicles to contemplate trading down for something more fuel efficient.

"I wouldn't trade it in because I like this car, though I'm annoyed I didn't refill it last night," said entrepreneur Zhang Jingcao, patting his Citroen Picasso with a smile.