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Why March’s disappointing car sales are negative for oil tankers

Xun Yao Chen

Must-know crude oil tanker outlook: Some good news and bad news (Part 8 of 10)

(Continued from Part 7)

China’s car sales

Weak manufacturing activity in China is putting pressure on China’s oil consumption, crude oil imports, and demand for crude tankers. But weaker automobile sales play an important role too. This is particularly important in China, where the majority of people don’t have cars and transportation is expected to be a larger source of future growth as the country shifts from an investment-led economy to an economy driven more by consumption.

Relatively solid growth during the first two months

During the first two months of 2014, China sold 3.75 million cars, equal to a 10.73% increase from the same period in 2013. Although it wasn’t as high as the average growth of 14.00% that the industry saw throughout 2013 and 15.40% growth in the second half of 2013, 10.73% was still relatively strong compared to 2011 and 2012. Of course, we must remember that those two years were relatively weak compared to the prior years.

Disappointing March sales

In March, though, China sold a disappointing 2.17 million units. On a year-over-year basis, that’s a 6.6% increase, roughly half the growth rate experienced in 2013. As economic conditions improved last year, car sales rose in China. But in 2014, vehicle sales in China will face headwinds as pollution concerns and traffic jams prompt cities to cap the number of new autos in order to meet the central government’s targets for reductions in air pollutants. It seems like such measures are taking effect, which is negative for crude tankers such as Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), Teekay Tankers Ltd. (TNK), and Frontline Ltd. (FRO).

At the beginning of the year, China’s main car association forecasted growth of 10% in 2014. If this expectation still holds, China’s auto sales should improve down the road. When will that happen? We have no idea.

Continue to Part 9

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