China Economic Hype And Crude Oil

Let’s catch the bus from now on….

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By John Richardson

THE blog has long been worried about the difficulty, probably the impossibility, of accurately measuring real Chinese growth.

And it gets harder as the country now has some 130,000 polyolefin traders and distributors, according to an estimate we heard last week.

We keep touting our idea of an inventory sentiment index which would involve interviewing, say, 100 producers, buyers and traders inside China and the same number outside the country. We would ask them the simple question of whether they thought stock levels were higher, lower or the same as the previous month.

The latest sign-up to our idea is Nikhil Meswami, executive director and head of petrochemicals at Reliance Industries Ltd (RIL).

The concept of the index reflects how China is an information black hole, into which attempts at accurate number-crunching disappear without trace.

This problem applies not just to polyolefins, of course, but also to crude oil – as Jason Feer, Vice President and General Manager Asia Pacific for the Argus Media Group, pointed out in a speech at this week’s APPEC oil and gas conference in Singapore.

“The data coming out of China raises many questions. We have seen the headline numbers – crude demand is supposed to have risen from about 7.2m barrels a day in the summer of 2008 to 9m barrels this summer,” he said.

But he admitted that after studying the data, he couldn’t work out where all the crude was going. He added that he had reached the conclusion that the around one million Chinese buying vehicles each month must be driving them home from the showroom, parking them in front of their homes so their neighbours could see them and then continuing to catch the bus to the shops and to work.

A study of fuel-oil and gasoil consumption hasn’t helped.

Demand for fuel oil – used for power generation and as feedstock for small refineries – was volatile and directionless, he said.

Gasoil or diesel is generally thought to be a good indicator of manufacturing-based economic growth, but, despite China’s economy ostensibly expanding at 8-10% this year, demand had only recently returned to pre-Beijing Olympic levels, he added.

China has become a significant exporter of gasoline thanks to new refinery capacity, but even taking these shipments into account, the oil-consumption data still doesn’t add up.

“Every month there is 400,000-800,000 barrels a day (of oil demand) that we simply cannot account for.”

China has been injecting 200,000-300,000 barrels a day of crude into strategic stockpiles, but Feer said that this had been going on for a couple of years “so it does not account for the recent growth in demand.

“In the end, I do not have a solution to this mystery. As a well-known, know-it-all, this is a bit frustrating.

“But I think it shows that amid the hype that China’s economy is growing at 8% and has turned itself into a market based on domestic demand, there are real questions about the quality and nature of the growth we are seeing and the data coming out of China.

Plus ca change, plus c’est la meme chose.

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