uploads/2017/04/PMI-2.jpg

How China’s Manufacturing and Auto Industries Fared in March

By

Updated

China’s PMI

Markit’s manufacturing PMI (purchasing managers’ index) is an indicator of a country’s manufacturing health. The index was 51.8 for China (MCHI) (FXI) in March 2017 compared to 51.6 in February.

China’s oil demand is closely related to its manufacturing activities. Higher manufacturing activities translate to higher demand for oil, which translates to higher demand for crude oil tankers.

For the past eight months, the index has consistently been above 50. A PMI of 50 is considered neutral. A reading below 50 signifies contraction, and a reading above 50 signifies expansion.

Article continues below advertisement

China’s automobile sales

One of the major petroleum products consumed in China is gasoline. Gasoline demand is dependent on the automobile industry. According to data from CAAM (China Association of Automobile Manufacturers), China’s (FXI) auto sales reached ~2.5 million in March, a rise of 4.2%. In 1Q17, China’s (MCHI) auto sales rose 7.0%, resulting in the strongest first quarter since 2014. The year has started off far better than expected.

Higher automobile sales will eventually boost gasoline demand, increasing the demand for crude oil and the demand for crude oil tankers. Tankers are operated by companies such as Frontline (FRO), Nordic American Tankers (NAT), Teekay Tankers (TNK), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP).

China’s rising automobile sales and its strength in the industrial sector are positive signs for the crude oil tanker industry. In the next part of this series, we’ll gauge the oil demand for the Unites States.

Advertisement

More From Market Realist