Industry sources attributed the rise to an increase in gas oil production as refiners moved to meet a government directive to control refinery throughput and maintain prices.

But in order to satisfy the high demand for gas oil, refiners have had to operate secondary units which consume these heavy oils, at a high rate.There are, however, worries that the government could impose import quotas on the two feedstocks once domestic gas oil inventories swell and force price cuts.

"They would be like crude oil, which is now restricted by quota," said a refinery manager. LSWR and VGO,feedstocks used to produce gasoline and gas oil, are exempted from import quota or licence.Chinese customs levy an import tariff of 12 per cent for both oil products. A refinery source said they bought 50,000 tonnes of VGO from Japan at 890 yuan per tonne ($107) on a cost-and-freight basis delivered in end March.

Another refiner placed an order for a 30,000 tonne VGO cargo from Japan at a similar price for April delivery.Most of the Chinese buyers require a VGO with a maximum final boiling point (FBP) of 520 degree centigrade. LSWR is largely sourced from Japan, Russia and Malaysia, they said. One coastal refiner has plans to import around 8,00,000 tonnes of LSWR for 1999, up one-third from the previous year.

China's key importers of LSWR and VGO are coastal refiners with residue fluid catalytic crackers (RFCC) and hydrocrakers. China's refinery run of between 73 to 75 per cent has prompted refiners to source more feedstock for better secondary margins.

Refinery throughput was strictly controlled by thegovernment on a quarterly basis, industry sources said.