16th April 2010 - A Story Of Success

For more than a decade the impressive growth of the Chinese economy has fuelled global economic development and supported a magnitude of industries, including shipping. Even last year, when most of the world was in deep recession, China's economy continued expanding, albeit at a slower pace. Now, once again, China is powering global growth, with its GDP figure at 11.9% for the 1^st quarter this year, following a massive $585 billion fiscal stimulus programme announced in late 2008.

For the tanker industry a rapid expansion of China's refining capacity in 2009 has meant a colossal increase in crude import requirements. Also, the introduction of a new pricing system last year, whereby refining profit margins are guaranteed by the state (up to a certain ceiling in international oil prices), provided a strong incentive for domestic refiners to ramp up throughput. Crude imports into the world's fastest growing economy have increased sharply since the 2nd half of 2009. In the 1st quarter of this year alone, crude imports averaged nearly 4.7 million b/d, up massively by 1.3 million b/d, or 39% compared to the same period last year. Taking into account that most of this volume is shipped in VLCCs, this translates into an additional demand for more than one VLCC every two days! 

And there is more to come. At present, oil consumption per person in China is nearly ten times smaller than in the US, and so the long term growth potential in demand is huge. At the same time, any increases in domestic crude production are forecast to be fairly limited. Thus, growing demand will be met by crude imports and so it is not surprising that in the recent past Chinese companies have been aggressively acquiring energy assets all over the world. With most of the available oil prospects located in the Atlantic Basin, the strategy to secure future crude supply is focused on "far away" regions. Although it will take years for the results of these acquisitions to become fully apparent, we are already seeing increases in the long-haul crude trade into China. Imports from West Africa and Latin America roughly doubled over the course of last year and are set to grow further.  On this basis, the expectation of strong growth in China's total crude imports, as well as its increasing long-haul trade will continue to be major support factor to tanker markets for years to come, particularly on the VLCC front.