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Finance Minister Lou Jiwei speaks of lower economic growth, risk for tankers

Xun Yao Chen, Industrials Analyst

As most of oil import growth these days is coming from China, its economy has a significant impact on oil shipments. When China’s economy is growing strong, oil shipments growth tends to be high, which is positive for tanker companies. But when China’s economy is growing at a lower pace, oil shipments growth will also fall, which will be negative for tankers.

Lou Jiwei speaks of below 7.0% growth

On July 12th, China’s Finance Minister Lou Jiwei signaled that China’s Gross Domestic Product (GDP), a measure of economic output, may fall below 7.0% in the second half of the year, which is below the 7.5% official target set by the new government for this year. Historically, led by investments, GDP has grown at an average of 10% over three decades. But that has changed lately as the golden age of investment-led boom came to an end a few years ago, and the new government is tolerating lower economic growth for long-term sustainability, in addition to making reforms that will open China up to more competition, urbanization, private enterprises and consumption.

Implication for tankers

Since car sales and oil import growths are highly sensitive to economic growth, Lou Jiwei’s comment points to a negative outlook for the tanker industry. Whether his forecasts will be realized or not is yet to be seen; car sales growth remains robust, which Market Realist updates on a regular basis. However, this is a potential risk because it appears the new government is able to tolerate lower economic growth. If a 7% economic growth does happen, it will be negative for tanker firms’ earnings. This includes Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), Ship Finance International Ltd (SFL), as well as the Guggenheim Shipping ETF (SEA).

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