* Monthly diesel imports down by as much as 20 pct from last year
* Demand from mining sector expected to be low until end of the year
* Shift seen towards cheaper alternatives like natural gas and coal
By Jessica Jaganathan
SINGAPORE, May 23 Indonesia's diesel demand is expected to remain weak at least until the end of the year as a slowing economy, contraction in the mining sector and a shift towards cheaper alternatives curb use of the fuel, industry sources said.
Indonesia, one of the biggest importers of diesel in Asia, has slowed imports by as much as 20 percent a month this year compared with last year, the sources said. The fuel is used in the industrial, mining, agricultural and transport sectors.
While a slight pick-up is expected from the industrial sectors ahead of the Muslim fasting month of Ramadan, which starts in early July this year, overall monthly imports are still expected to lag previous years, they said.
"Diesel demand from the industrial sectors might pick up close to Ramadan, but demand from mining sectors look hopeless till the end of the year," said a source who supplies diesel to Indonesia.
Asian gasoil margins fell to a more than two year low in April due to weak regional demand from countries like Indonesia and Vietnam, before recovering this month due to summer demand from Saudi Arabia.
Indonesia's economy grew at its slowest pace in 2 1/2 years in the first quarter, while the mining sector contracted nearly half a percent compared with a year ago.
Demand from mining companies in Southeast Asia's top diesel buyer has also faded since last year following a drop in coal prices and after an export tax was levied on 21 metal ores and concentrates.
The country's biggest diesel importer, state-owned energy firm Pertamina, has been importing about 2.8 million to 3.5 million barrels a month this year and is expected to buy a similar volume for June, traders said.
This is down from an average of 4 million to 4.5 million barrels a month from previous years for Pertamina, they said.
Other importers, including AKR Corporindo, BP , Wilmar International and Kernel Oil, have imported a combined average of about 2.5 million barrels a month this year, down from 3 million barrels a month last year, one of the sources said.
SHIFT TOWARDS CHEAPER ALTERNATIVES
Another reason for the reduction in diesel imports is due to the country's gradual shift towards cheaper alternatives, traders said.
"Diesel demand has been coming down because utilization of gas, coal and renewable energy is going up to replace diesel step-by-step," a source based in Indonesia said.
Indonesia, the world's third-largest LNG exporter, is increasing the use of natural gas at home to avoid costly imports and to feed rising demand. Supplies have also declined from its ageing fields.
Lower coal prices have also been one of the main drivers in the reduction in diesel imports, traders said. (Editing by Tom Hogue)