Key crude tanker stocks updates, September 20–27

Part 7

Why oil import growth will pick up as Chinese use more cars

The importance of China’s auto sales data

Aside from the manufacturing PMI, China’s automobile sales are 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.

China Automobile Sales and Oil Imports 2013-09-30Enlarge Graph

Automobile sales units slowed slightly

As the above chart shows, oil imports have 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 rose from 15.2 million in July to 16.5 million in August. The year-over-year growth rose from 9.93% to 10.28%, partially recovering the decline from 11.19% seen in June. As we expected, the six-month rolling average year-over-year growth jumped from 6.98% to 10.87%, recapping most of the sharp decline from June to July. As this is the second time that January’s data hasn’t been included within the six-month rolling data, August’s data provides more of an accurate picture of how car sales are developing in China.

Motor Vehicles Ownership 2013-09-09Enlarge Graph

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.

Interpreting the current data

The past few months of car sales growth suggest fuel consumption will increase in the months ahead, which would support oil imports. 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). Over the long term, however, China’s car use should catch up with the rest of developed economies, which will further drive demand for tankers as long as people still use oil to run autos. This also applies to the Guggenheim Shipping ETF (SEA), which partially invests in crude tanker companies.

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