The importance of China’s auto sales data
Aside from the manufacturing PMI, China’s automobile sales is another key indicator that analysts and investors watch. As autos are the largest end users of oil, high auto sales growth often leads high oil consumption and oil import, which supports tanker demand and rates. High car sales growth also means the economy is doing well. With the economy booming, more and more people will be able to purchase cars. On the other hand, when sales are slow, they’re often negative for oil consumption, import, and shipments.
Automobile sales units slowed slightly
As the above chart shows, oil import has historically lagged year-over-year growth in car sales. This reiterates the importance for tanker investors to look at car sales. Based on the latest data available, the number of automobiles sold fell from 1.75 in June to 1.50 in July. The year-over-year growth fell from 11.19% to 9.93%. Based on six months of rolling data, which smooths the trend, growth fell from 12.26% to 6.98%. Although this looks worrisome, investors should note that this is the first month that doesn’t include January’s record sales in the six-month rolling year-over-year data, while February’s data was weak due to New Years. So it may be best for investors to ignore the rolling average data for July, and instead look at August’s data, which is expected to be released later this week.
China’s car ownership has much farther to go
Given that China’s car ownership was just 54 cars per 1,000 people in 2010 while the world’s average is 120 cars and developed countries average 500 and more, there’s much room for growth in car sales as well as oil demand. Investors who focus on the long-term trend will know that car manufacturers such as Ford, General Motors, Toyota, and Honda as a whole will do well. As China is transitioning to a more consumption-driven economy, car sales and oil demand won’t likely slow down as much as people may think.
Interpretation of the current data
The past few months of car sales suggest we’ll see higher oil imports ahead. This is positive for tanker stocks such as Teekay Corp. (TK), Nordic American Tanker Ltd. (NAT), Frontline Ltd. (FRO), and Ship Finance International Ltd. (SFL). But August’s data is one key data to watch, which could influence oil imports positively or negatively on tanker stocks in the short to medium term. Over the long term, however, China’s car use should catch up with the rest of developed economies, which will drive demand for tankers. This also applies to the Guggenheim Shipping ETF (SEA), which partially invests in crude tanker companies.
- Part 1 - U.S. imports could fall, negative impact on tanker rates this year
- Part 2 - The dynamics of the global oil trade and demand for crude tankers
- Part 3 - Oil firms focus on production development in the United States
- Part 4 - U.S. oil production could slow in 2014, benefiting crude tankers
- Part 5 - U.S. oil demand rose significantly, positive for tanker rates
- Part 6 - What you didn’t know about China’s PMI, oil use, and tanker demand
- Part 7 - China’s crude imports rose to a record, affecting tanker stocks
- Part 8 - China’s August automobile sales data: Important for tanker stocks
- Part 9 - Why oil production will outpace consumption, no recovery in sight
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