Wang Jun has been restless since the beginning of March when his refinery started to run down its activity, and he isn't sure when production will resume.
As a sales vice-manager with a local refinery in east China's Shandong Province, this plant shut-down would have been unimaginable only a few years ago – the planting season has arrived, usually a big boost to market demand for diesel oil.
![The local refineries are in a marginalized position in the competition with state oil giants. [China.org.cn]](http://images.china.cn/attachement/jpg/site1007/20090330/00016c8b5de90b3ab41304.jpg "The local refineries are in a marginalized position in the competition with state oil giants. [China.org.cn]") |
| The local refineries are in a marginalized position in the competition with state oil giants. [China.org.cn] |
"Now we have the pressure of huge diesel oil stocks. Prices have hit rock bottom. A production shut-down is the only thing we can do for the moment to limit losses," said Wang Jun, indicating his feeling of helplessness.
According to Wang, supplies of diesel in February exceeded market demand by about 3.20 million tons, and this excess represented as much as 40% of that month's total consumption volume (about 8 million tons). "This situation has been on the cards for some time. The current wholesale price is below our production cost. So as a temporary measure we have to drop out in hopes of better prospects in the future."
This is not an isolated case. Business data from CBI China shows that on March 19, 21 local Shandong refineries reported a historic low of 13% production against capacity, a further 2.5% decline against March 12. Among the 21 plants in the survey, 15 were on a maintenance-only schedule, and unsure when production would recommence.
PetroChina (SH.601857, HK0857, NYSE.PTR) and Sinopec's (SH.600028, HK.0386, NYSE. SNP) price competition since the end of last year has been driving the country's refined oil prices. On some occasions the two oil giants have followed one another in lowering prices to ease inventory pressure; on others they have joined forces to push prices back up.
