Tuesday, October 25, 2005

Chinese oil consumption falls sharply 

China's economy, based as it is on low-cost manufacturing, seems to be substantially more vulnerable to high energy prices than our own.
Chinese fuel oil demand in 2006 may find it difficult to recover from this year's slump on the back of high global oil prices and depressed refining margins by China's tight lid on auto fuel prices, industry sources say....

The International Energy Agency forecast daily fuel oil demand to rise 2.7 percent next year to 806,000 barrels, after a 5.4 percent fall in 2005, the first drop in three years, as key consumers — industries and small refineries that process it into motor fuels — were forced to shut down or cut output.

Much as we Americans hate shipping our dollars to Saudis for oil -- OK, fine, there is no evidence that we actually hate it, or we'd stop -- the energy market is probably doing a good job of recycling China's own massive trade surplus. We ship our dollars to the Chinese in return for the inventory of thousands of Wal-Mart stores, and they ship them to the Saudis in return for oil which they burn quite wastefully making all the stuff to send to Wal-Mart.

The linked article is also interesting for the light it sheds on China's system of energy production and distribution. In particular, it describe's China's tiny, privately-owned oil refineries called "teapots":
Many of China's tiny refineries, called teapots, which source its fuel oil mainly from South Korea, Russia and Singapore, have been forced to trim operations or shut down for most of the year.

More than 100 such plants in China, each with daily capacity of between 6,000 and 60,000 barrels and mostly run by private businesses, had been battered by poor margins due to Beijing's auto fuel price caps. This was despite the 15 percent rise in retail rates of diesel and gasoline.

These plants command a niche market of 10-15 percent of China's oil sector, selling lower-priced, inferior diesel to factories or independent petrol stations with lower quality standards.

A teapot manager from eastern Shandong Province estimated that a third of the teapot plants in his province had been shut.

“Business has never been so difficult. My plant was shut two-thirds of the time this year as my customers can't afford my product,” said Liang, a manager at a teapot plant in Guangdong.

My sense is that the Chinese have never gone in for massive conglomerates in the Japanese and Korean mold. It is interesting that they have found a way to turn a capital intensive business like oil refining into a small, family business.

CWCID: Simon.


Post a Comment

This page is powered by Blogger. Isn't yours?