7 points that reflect tanker fundamentals say recovery isn’t looming (Part 6)

China Automobile Sales and Oil Import 2013-07-17Enlarge GraphContinued from Part 5

China: the key importer

On the other side of the world, China’s thirst for commodities, driven by economic growth of above 7% and higher wages, has led the increase in oil imports. Although oil demand is sensitive to economic growth, auto sales are a better leading indicator because the transportation sector soaks up the majority of oil demand. When car sales grow quickly, oil imports should too.

Growth in automobiles

Based on the latest data available, automobile sales rose at an annual growth rate of 11.19% in June to 1.75 million units—which was higher than May’s growth of 9.60%. Using the last six months of data, car sales have grown at a pace of 12.26% compared to the same period in 2012, up from 11.53% in May. Oil imports, which have traditionally mirrored car sales, fell 0.41% year-over-year. Given that car ownership is just 54 cars per 1,000 people, while the world’s average is at 120 cars and developed countries’ average at 500 and more, China has become the new big market for car manufacturers such as Ford and General Motors. This should also support oil import growth long-term.

Near-term divergence

The divergence we’ve seen in oil imports and auto sales growth is caused by an increase in stockpiles in 2012. While economic and auto sales growth slowed in 2012, led by high interest rates that were intended to rein in on high inflation in 2011, oil imports continued to rise rapidly, particularly from February to July. This meant data for oil imports in 2012 is higher than it should have been, which lowers the 2012 to 2013 year-over-year growth rate.

Even if year-over-year oil import growth will rise in the next few months, China’s oil import growth will likely be close to null this year, which will negatively impact tanker firms such as Tsakos Energy Navigation Ltd. (TNP), Ship Finance International Ltd. (SFL), and Nordic America Tanker Ltd. (NAT), as well as the Guggenheim Shipping ETF (SEA). In 2014, the two indicators should go back to their traditional relationship.

Learn more about indicators that reflect tanker fundamentals

Continue to shipping rates, Part 7, or go back to see the list of indicators, Part 1.