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China gasoline more expensive than U.S. but consumer reaction milder
March 27, 2012 / 11:31 AM / 5 years ago

China gasoline more expensive than U.S. but consumer reaction milder

* Gasoline at pump costs a quarter more than that of U.S.

* Fuel hikes force some to cut driving

* Slower GDP, higher prices to hit diesel demand

By Chen Aizhu and Judy Hua

BEIJING, March 27 (Reuters) - China has hiked retail gasoline prices twice in six weeks to a quarter more than those in the United States, a move that’s suddenly made Beijing’s metro an attractive option for 27 year-old accountant Liu Jia who would normally prefer his Honda Accord.

Half way across the globe in the United States, the world’s top oil-consumer, the pain of high gasoline prices is being felt more keenly.

George McNary, 43, a warehouse worker in Cleveland, Ohio, recently traded in his dream vehicle - a 2010 Ford F150 truck - for a 2004 Honda Civic, saying gas bills have become so expensive that he felt “it was taking food out” of his kids’ mouths.

Liu and McNary’s disparate responses underscore the differences between the United States, where high gasoline prices are hurting President Barack Obama in an election year and China, where only six in 100 people - similar to the U.S. in the 1920s - own a vehicle and those six are likely to be quite rich.

China may be the world’s No. 2 oil consumer and have the world’s biggest vehicle market but current high oil prices are unlikely to dent growth in fuel demand much or sales of fuel-guzzling sports utility vehicles.

The country, which imports 56 percent of the oil it needs, is set to lead global oil demand again this year by contributing nearly half of the world’s incremental fuel use, although the pace has slowed. The International Energy Agency sees China’s oil demand growing 3.9 percent in 2012, or 370,000 barrels per day to 9.88 million bpd, compared with a 4.9 percent rise in 2011.

Gasoline prices in China have climbed 10 percent higher since February, with pump prices now at $1.20-$1.30 a litre in most cities, as the government seeks to align rates closer to global oil prices and curb excessive fuel burning.

This will cut some driving, but most consumers, like Liu will only tighten the belt somewhat.

“I wouldn’t cut down my daily driving for work because of the hike. But prices this high do have a strong psychological impact - that will limit my driving to only commuting for work, not leisure,” said Shen Yan, a journalist, who drives a Skoda Fabia.

The price hikes will also to some extent help foster the use of alternative fuels and promote the development of buses and trains.

“As the oil supply pressure mounts, the government is increasingly thinking of fuel substitutions and developing public transportations in a big way,” said Yan Kefeng of consultancy Cambridge Energy Research Associates.

Methanol, ethanol and natural gas have risen to contribute some 9 percent of total gasoline demand said Yan, resulting in much slower growth in gasoline use relative to the surge in the number of cars.

But demand for gas and cars is expected to keep climbing.

In a status-conscious society where sitting high above the traffic in an expensive off-road vehicle has appeal, SUV sales jumped 25 pct last year to 2.1 million vehicles, accounting for almost 12 percent of light vehicle sales, according to J.D. Power and LMC Automotive.

That is about half of the 4.1 million SUVs sold in the United States, where SUVs were 32 percent of the light vehicle market.

The IEA expects China’s gasoline demand to keep growing this year, around 3.9 percent or 66,000 bpd this year after growth of 7 percent in 2011. But absolute levels are still low at around one fifth of the 8.7 million bpd forecast for the United States this year.

DIESEL DEMAND

The price hikes are also likely to dampen growth in diesel demand, already hurt by the slowing economy, although analysts caution that sketchy data makes it impossible to quantify by how much.

Matt Parry, an analyst at Paris-based IEA, pegs China’s diesel consumption this year to rise 3.7 percent, or 125,000 bpd, compared to growth of 6.3 percent last year.

“The economy is going to slow and prices are going higher. It’s like a double whammy,” he said.

Demand for diesel, used in trucks, power stations, railways and ships, is more closely tied to exports and China’s economic performance than gasoline. Rising costs may also make Chinese plants less competitive than their Indian counterparts, for whom diesel costs are a third cheaper thanks to bigger subsidies.

“The bigger impact will be on diesel consumption for industry use, which will translate into production costs and damage corporate profits,” said Frank Ye of Consultancy Chem1.

Automotive diesel -- burned mostly by trucks -- makes up more than half of China’s total diesel demand of 3.4 million bpd, or a third of the country’s total fuel use.

Compared to the mid-2008 when crude peaked at $147 a barrel, diesel costs for China’s lorry drivers have climbed 40 percent.

That has Wang Xiaoxiang, a manager of a small logistics firm in eastern Zhejiang province who has seen freight shrink on slowing exports since 2011, fretting further.

“We used to truck 50 tonnes of goods a day, now only 20, 30 tonnes...the ever rising diesel prices are just making things worse,” he said.

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