China's crude oil imports hit a record of about 2.8 million barrels a day in June, prompting speculation that aside from a boom in demand, Beijing may be quietly building inventories.

China's crude oil imports hit a record of about 2.8 million barrels a day in June, prompting speculation that aside from a boom in demand, Beijing may be quietly building inventories.

Latest data from Chinese customs on Wednesday showed that in June China imported 11.27 million tonnes, or 2.82 million barrels a day (bpd) of crude, 47 percent above June 2003, despite government measures to slow activity to put the brakes on the economy.

The monthly record brought imports in the first half of 2004 to 61.02 million tonnes, or 2.51 million barrels per day (bpd), 39 percent above January-June 2003. The data shows crude import growth in the year to the end of June continued to accelerate, from growth of 37.6 percent in the year to end-May, when imports averaged 2.46 million bpd.

Rocketing fuel imports this year have been driven by a sharp upturn in demand to fuel China's economic growth and a worsening national power crunch.

Analysts project oil demand in the second biggest consumer after the United States will rise by anywhere from 500,000-800,000 bpd this year to over six million bpd.

But some analysts say China has also been putting barrels into inventory, worried by its increasing dependency on imported oil.

"The country's two state oil firms may be keeping a higher level of commercial stocks than before the Iraqi war in March last year, possibly under a state mandate to boost (oil) security," said Kang Wu from the Hawaii-based East-West Centre.

Beijing has started work on storage on the eastern seaboard, which will make up the first phase of a national strategic stockpile of about 100 million barrels of crude. The tanks are due to be ready by the end of 2005.

But top refiner, Sinopec Corp, has already opened commercial storage of about 2.5 million cubic metres, or 15.7 million barrels, in eastern China earlier this year.

The depots are linked to a new crude pipeline with a capacity to transport 20 million tonnes, 150 million barrels, a year.

"The tanks are being fully used," said a Sinopec official.

REFINERS RAMP UP OUTPUT

China, which became a net crude importer in the mid-1990s, now imports about 43 percent of its crude requirements and its dependency is increasing as domestic production declines.

"One apparent response -- stockpiling -- has effectively magnified China's market presence for the past 18 to 24 months. Our attempts to quantify this trend suggest that stocks have built consistently since early 2003, perhaps by as much as 285 million barrels," JP Morgan said in a strategy note this month.

JP Morgan estimated that the build in crude stocks this year through May was 560,000 bpd and China could add 85 million barrels to stocks this year.

Taking net crude imports in the year to end June plus domestic production and subtracting oil processed at China's refineries implies that 9.6 million tonnes of crude was either stored, directly burned or lost during refining.

Chinese refinery throughput is up 18 percent for January-June to about 5.52 million bpd, data from the State Statistical Bureau showed.

But oil products' imports also saw double-digit growth as China grappled to overcome widespread power shortages. Customs data showed fuel oil imports surged 53 percent to 16.4 million tonnes in the first six months, of which 45 percent was processed into gas oil, or diesel.

Total gas oil imports leapt 172 percent to 1.34 million tonnes, the data showed.

Customs data showed gasoline exports fell 34 percent to 2.54 million tonnes in the first six months to fuel the soaring number of family cars, although new sales have begun to slow with government measures to curb loans.

(1 tonne= 7.5 barrels)