China and the shipping industryThe shipping industry relies
heavily on China. To see why, investors look at two metrics: exposure and
variance.Exposure: How big is China in global trade?In 2010, global
crude oil import amounted to roughly 43.7 million barrels per day, based on the
U.S. Energy Information Administration (EIA)’s numbers. In those days, the
United States, which historically has been one of the largest importers of crude
oil, imported 9.2 million barrels a day. China, which ranks second and in front
of Japan, imported 4.8 million barrels, approximately half of the United States’
imports. This means what happens to the United States and China has a
significant influence on world oil shipments.Variance: Measuring the changes
in oil importsBut mere exposure is not enough. Investors also consider the
variance, or the degree of change, that a country’s oil import may experience in
the future, because variance affects future tanker (ships that haul oil across
the ocean) demand, which in turn affects shipping rates. The chart above shows
that oil shipment has been driven by a decline of 64 million metric tonnes a
year in import to the United States, which was led by an energy boom (see US oil
imports fall to a record low since 2007, oil shipping (tanker) outlook remains
negative). On the other side of the picture, oil shipments were positively
driven by China’s economic growth of about 8% to 9%, which led to an increase of
92 million metric tonnes of oil imports over the past five years.Although
Japan is still a major importer of oil, its economy isn’t growing due to the
lost decade. The recent rise in business sentiment may give a little boost to
oil imports in the next few months (see Why oil shipping stocks don’t really follow Japanese activity anymore), but several
manufacturers (such as Toyota and Honda) have moved their plants to China to
meet the country’s growing demand. Because of this move, oil imports to Japan
are unlikely to affect shipping rates significantly. While India recovered from
a recession in 2008, its outlook has been bleak and will likely stay that way
for now due to high inflation.So, activities in the United States’s energy
boom and China’s economic growth have important implications for tanker
companies such as Teekay Corp. (TK), Tsakos Energy Navigation Ltd. (TNP), Ship
Finance International Ltd. (SFL), Nordic American Tankers Ltd. (NAT), and Teekay
Tankers Ltd. (TNK). This impact will also affect the Guggenheim Shipping ETF
(SEA). As the chart above shows, high economic growth in China has coincided
with high import growth in crude oil since 2005.
OPINION
11 July 2013 - 20:16
Why China's financial woe affects oil shipping (tanker) companies
The shipping industry relies heavily on China. To see why, investors look at two metrics: exposure and variance.
OPINION
11 July 2013 - 20:16
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