Currently, Chinese manufacturers have lost their appetite for commodities, which has impacted heavily on demand for coal, iron ore and copper with an obvious knock-on effect on the drycargo market, Gibson research said in a recent report.
Some Chinese policy makers called the slowdown “the new normal” and claimed that they have overseen the smooth transition in annual growth from 10% to a still impressive 7%.
However the Beijing Government chooses to resolve the present crisis, any resolution will have far reaching repercussions on the rest of the world. Someone once said "When America sneezes the whole world catches a cold". Now China is sneezing and everyone is catching a cold.
The crude oil tanker market looks to be immune to the fallout – at least for now, as China has taken advantage of the low crude oil prices to fill both its strategic reserve, as well as the country’s commercial inventories.
Crude oil imports to China hit a record 7.6 mill barrels per day in July and are anticipated to remain at elevated levels into second-half of 2015, despite the slowdown in economic growth.
China is continuing to build vast storage caverns to house the expanded strategic petroleum reserve (SPR), which will continue to support crude imports and thus the VLCC trades.
July’s record crude imports coincided with the opening of the new 15 mill barrel SPR at Huangdao. Two additional SPR sites at Huizhou and Jinzhou with a combined capacity of over 50 mill barrels are also scheduled for commissioning this year. Another 8 mill barrel facility at Hainan is also due to commence filling up now, Gibson explained.
However, as yet it is still unknown if the new SPR at Tianjin is closed as a result of the explosion on 13th August. Between March and May, this facility had been taking around 60,000 barrels per day but was due to ramp up its intake prior to the explosion.
It appears that the only limitation on Chinese crude imports is the ability of the government to raise the SPR’s capacity, which tends to be filled as soon as the facilities are built.
The latest available statistics estimate oil reserves are currently around 30 days cover (including commercially owned stocks) and the Government’s aim is for the SPR to hold 100 days cover by 2020.
China is now the world’s largest crude importer and as long as the oil price remains attractive, it will continue filling reserves. Last week China lent $5 bill to Venezuela in an oil backed deal to secure continuity of supply.
In addition, Beijing will be eagerly waiting to step up imports of Iranian crude once sanctions are finally lifted next year, Gibson concluded.