Leap in China oil imports leaves Asia dynamos behind

Leap in China oil imports leaves Asia dynamos behind

ANALYSIS

Singapore (Platts)--3Nov2006

China has decoupled from the other Asian economic giants with its oil
appetite in 2006 and is set to stand apart with another bumper year-on-year
growth in petroleum consumption, an analysis of government and company
statistics from the countries shows.
While the Asian dragon's red hot economy has speared ahead at above 10%
in 2006, heavyweights Japan, South Korea and India have not done too badly,
but the growth in their oil consumption is relatively moderate, going by their
crude import figures, a good proxy for demand in the four countries.
Underlying the divergence in oil demand among the four Asian dynamos is
the variation in policies on whether and to what extent they cushion their
end-users from increases in the world prices.
While the lack of any state-sponsored subsidies in Japan and South Korea
have crimped demand in those countries, the Chinese consumer so far remains
largely immune to spikes in the international markets.
In India, where the government has reluctantly allowed marketers to pass
on some of their higher crude costs, oil demand growth has been reined in,
more industrial users are switching to the relatively cheaper natural gas, and
private refiners like Reliance, who are not obliged to meet domestic
requirements, have ramped up exports.

CHINESE DEMAND GROWTH SHOWS MAJOR REBOUND
China imported 109.25 million mt of crude in the first nine months of
this year, an average of about 2.92 million b/d, for a 16.3% increase from the
same period a year ago, according to customs statistics. While that pales in
comparison with the spectacular all-time-high the growth rate of 34.8%
recorded for all of 2004, it represents a major rebound from last year's
anemic 3.5%.
The Chinese economy expanded by 10.7% in the first three quarters of
2006, according to the National Development and Reform Commission, the
country's top economic planner, and is expected to grow 10.6% for the full
year.
But a high correlation between China's economic expansion and its oil
consumption can no longer be assumed. The 3.5% on-year rise in Chinese crude
imports in 2005 corresponded to a robust 10.2% economic growth that year.
That factor, coupled with this year's spike in Chinese crude imports at a time
world oil prices reached fresh new highs, underscores the unpredictability of
the country's thirst for oil.
India was right behind China in the Asian oil demand boom phenomenon of
2004 with a 5.4% year-on-year rise in crude imports. It moderated to a 3.7%
increase in overseas purchases in 2005, and imports have seen 6.5% growth so
far this year.
Over January-September this year, India imported 80.56 million mt of
crude, or 2.15 million b/d, versus 75.63 million mt in the corresponding
period of 2005, according to government data.
The South Asian giant recorded 9.1% growth in its gross domestic product
for the first half of calendar year 2006, and is expected to show above 8%
growth for Q3 when figures come out later this month, according to the
government. Economic growth for fiscal year 2005-06 (ended March 31) was 8.1%.

INDIAN OIL IMPORTS RISE, BUT SO DO EXPORTS
Though this year's Indian crude imports growth of 6.5% suggests a
strengthening at first sight, it needs to be discounted on two fronts: rising
refined products exports and declining domestic crude production.
Though crude throughput grew and there were major refining capacity
expansions, exports by both the public sector and private oil refiners like
Reliance have jumped. Reliance Industries refined 15.7 million mt of crude in
April-September, and exported 8.76 million mt of products -- a ratio of about
56%. Of the 30.47 million mt crude it refined in fiscal 2005-06 (April-March),
products exports were just 10.8 million mt, or 35.44%.
Exports by public sector refiners, who command most of the domestic
gasoil and gasoline market share, are also up. Indian Oil Corp.'s exports over
April-September at 1.58 million mt were up 56% from the same period of 2005.
Bharat Petroleum Corp. lifted products exports in the first nine months of
2006 141% to 1.4 million mt.
Japan, Asia's largest economy and world's second largest behind the US,
is on the road to recovery from a deflationary spiral that set in in the
1990s. Japanese economy is expected to grow 3.5% in 2006, compared with 2.6%
in 2005, according to a recent report by Societe Generale.
However, in a country that does not shield consumers from high oil prices
unlike China and India, domestic products demand has eroded, especially for
gasoline, while fuel oil consumption by the power utilities has slumped on
increased nuclear power generation this year.
Japanese crude imports from January to September this year are up by a
negligible 0.6% at a cumulative 1.15 billion barrels, or 4.212 million b/d
according to data from the Ministry of Economy, Trade and Industry, while
exports of refined products during the period are up a remarkable 29.8%
year-on-year.

SOUTH KOREA SELLS MORE TO CHINA
The situation is similar in neighboring South Korea, where the Bank of
Korea reported GDP growth 5.8% in the first half of the year, and projects
4.4% for the last six months of 2006. That puts the country on target for
total 2006 growth of 5% over 2005, compared with growth of 4% in 2005.
The country imported 658.1 million barrels of crude in the first nine
months of this year, according to data from the state-owned Korea National Oil
Corp. That figure, equivalent to 2.4 million b/d, was up 6.5% from a year ago.
However, domestic consumption of oil products in the nine months slid
1.1% compared with a year ago to 557.97 million barrels, while products
exports jumped 14.5% over the same period.
The biggest buyer of South Korean products exports is China. While
announcing the September oil data, KNOC pinned the 2.4% rise in the month's
crude imports directly on a "sharp rise" in products exports.
That doesn't come as a surprise, given that along with crude, China also
stepped up its intake of products from the overseas markets, soaking in 23.24
million mt over January-September, or 621,000 b/d, up 25.5% on year. Even as
it shipped in more crude and products, the country retained a growing portion
of domestic output for its own use. Products exports, as a result, slipped 21%
in the nine months to 9.11 million mt, according to customs statistics.
If individual oil pricing policies among Asia's heavyweights remain more
or less unchanged, 2007 could bring more of the same. One factor that could
being more consistency to Asia growth is the price of oil itself, of course:
if light, sweet crude futures continues its current decline below $60/barrel
and the economies continue their march, some of the suppressed demand in
Japan, South Korea and India might return, creating a more pan-Asian oil
demand trend.
--Vandana Hari, vandana_hari@platts.com

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