China upbeat on gasoline demand as gas guzzlers become popular

Singapore (Platts)--7May2015/359 am EDT/759 GMT

The Chinese bought nearly 49% more gasoline-guzzling sports utility vehicles, or SUVs, in the first quarter of 2015 compared with Q1 2014 -- a statistic that is expected to support China's gasoline demand growth.

According to data from the China Association of Automobile Manufacturers, sales of multi-purpose vehicles, or MPVs, rose by 19.3% year on year in Q1.

The trend of strong sales growth in these gasoline guzzlers more than offset the adverse impact on gasoline demand due to overall slowdown in vehicle sales growth in China.

According to CAAM, total vehicle sales rose just 4% year on year in Q1 compared with 9% a year earlier. In a research note covering state-owned PetroChina published April 29, Nomura Research said the increasing popularity of SUVs in China could translate into higher-than-expected gasoline sales.

"Although fuel efficiency is increasing, SUVs in general can burn 20% more fuel versus lighter sedans with comparable engines," Nomura said.

According to CAAM, SUV sales are expected to grow by 25% to 5.1 million units, and MPV sales are expected to increase by 35% to 2.58 million units in 2015.

Based on the forecast from CAAM, SUV and MPV sales will account for 30% of total auto sales this year, up from 25% seen in 2014, according to Platts calculations.

This proportion of SUVs and MPVs in China is still lower than the proportion of SUVs and crossovers, or CUVs, in the US, which accounted for 36.5% of the total auto sales in 2014, according to data from IHS Automotive. This may imply that China's SUV and MPV sales volume has the potential to still rise in the future.

"People now tend to favor SUVs among all other categories of passenger cars, as SUVs are more suitable for self-driving over long distances," a source in the car industry said.

Since 2013, the government has also suspended highway tolls during major public holidays, including the week-long National Day and Chinese New Year holidays, making it more cost efficient for people to drive long distances.

Not surprisingly, China's apparent demand for gasoline -- calculated by taking into account domestic production and subtracting net exports -- rose 8% year on year during the first quarter to 27.67 million mt, or an average of 2.61 million b/d.

The strength of this Q1 growth was not accounted for by inventory changes.

According to Xinhua OGP data, gasoline stocks declined in Q1 2015 whereas they actually rose over the same period in 2014, suggesting actual consumption growth was higher than apparent demand in the first quarter.

This was slightly firmer than the growth rate of 7.8% seen in Q1 2014, and compares with a growth rate of 4% year on year to 10.48 million b/d for overall oil demand in Q1 2015.

Apparent gasoline demand rose a hefty 12.5% in 2014, but there were some signs since the second half of 2014 that this pace may not be sustainable because of moderating growth in auto sales after two successive years of double-digit growth.

But that scenario may now be changing given the blistering pace of growth in SUVs and MPVs sales.

Since November last year, gasoline apparent demand has surpassed 2.5 million b/d and now accounts for nearly a quarter of total apparent oil demand, up from 22% at the end of 2013.

CRACKDOWN ON BLENDERS PROMPTS STRONGER STATE-OWNED OUTPUT

A factor propping up apparent demand for gasoline in Q1 2015 has been a concerted effort by the government to clamp down on independent oil blenders producing off-specification fuel that do not meet the current National Phase 4 standard.

As a result, many blenders -- who essentially operated out of small workshops with a few oil tanks and a circulation pump and are located mostly in the eastern Shandong and southern Guangdong provinces -- have suspended operations, prompting refiners to raise their domestic production of gasoline to meet the supply shortfall.

Gasoline produced by blenders was not captured by official statistics so the higher production by refiners to compensate for the shortfall has to some extent inflated the apparent demand figure in Q1 2015.

But a source at Sinopec's oil product sales branch in Guangzhou said that actual demand for gasoline was strong and this is reflected by continually rising wholesale prices since earlier this year.

The company offered Phase 5, or 10 ppm sulfur, 92 RON gasoline at Yuan 8,400/mt ($1,374/mt) on Wednesday, a significant increase from around Yuan 5,300/mt at the end of January, according to the source.

PetroChina said Q1 gasoline sales rose 16.3% year on year to 15.33 million mt, a significant gain versus the same period of 2014, when growth was only 1.5%.

Sinopec did not break down its sales volume by product but also likely saw strong demand for gasoline given that its output of the fuel during the quarter rose 11% from a year earlier to 13.29 million mt.

--Staff, newsdesk@platts.com
--Edited by E Shailaja Nair, shailaja.nair@platts.com; with Song Yen Ling yenling.song@platts.com and Mriganka Jaipuriyar, mriganka.jaipuriyar@platts.com

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