Commodity Trading on the International Market-The growing big car culture in China |08 August 2008

Running a hand over his closely shaved head, Zhang scans the expanse of high-end suburban offices and villas that a decade ago was just another patch of farmland outside Shanghai. To his left is a royal blue sedan with a couple and a baby, in front of him a lone young woman being chauffeured in a van.

"In China, size matters," says Zhang, the 44-year-old founder of a media and graphic design company. "People want to have a car that shows off their status in society. No one wants to buy small."

Zhang grasps the wheels of his Hummer, called "hanma" or "fierce horse" in Chinese, and hits the accelerator.

Car ownership in China is exploding, and it's not only cars but also sport-utility vehicles, pickup trucks and other gas-guzzling rides. Elsewhere in the world, the popularity of these vehicles has tumbled as the cost of oil has soared. But in China, the number of SUVs sold rose 43% in May compared with the previous year, and full-size sedans were up 15%. Indeed, China's demand for gas is much of the reason for the dramatic run-up in global oil prices.

Boom in car ownership

China alone accounts for about 40% of the world's recent increase in demand for oil, burning through twice as much now as it did a decade ago. Fifteen years ago, there were almost no private cars in the country. By the end of last year, the number had reached 15.2 million.

There are now more Buicks – the venerable, boat-like American luxury car of years past – sold in China than in the United States. Demand for Hummers has been so strong that starting this year, Chinese consumers can buy a similar military-style vehicle called the Predator at more than 25 new dealerships.

Yet strong demand for oil isn't limited to China and its automobiles. Ever since an investment group led by a New York lawyer and a Connecticut banker came up with the notion of using Pennsylvania oil for lighting in the 1880s, petroleum has been an essential component of the industrial age. It fuels ships, planes and cars, and goes into road asphalt, home heating fuel, lubricants, plastics and petrochemicals.

The United States is the world's single largest consumer of oil, burning through more than 20 million barrels per day last year. This year, US usage is on track to decline the most in 25 years, the result of high fuel prices and a sluggish economy. Still, about one of every eight barrels of oil produced worldwide ultimately ends up in the fuel tank of an American car or truck.
 
Rise of the global middle-class

Demand in many developing countries, in the meantime, is accelerating because of the spread of middle-class lifestyles and populist policies that subsidise fuel to keep it cheap.
 
India's government, for example, will spend $24.5 billion this year on oil subsidies. And that's after subsidies were scaled back in June, triggering riots over the cost of diesel, which fuels most of the country's vehicles, and other oil products.

"The hike in fuel prices last month has done little to damp soaring diesel demand," said Seema Desai, an analyst at the Eurasia Group. Indians are paying about $3.60 a gallon for diesel, far below market rates, and demand is still growing at an annual rate of more than 20%.

 All this growth is more than offsetting the conservation measures taken in the United States, Europe and other industrialised nations. This year, the combined consumption of China, India, Russia and the Middle East will increase 4.4% and for the first time exceed that of the United States, according to the International Energy Agency.

For energy planners in the industrialised world, this is a cruel irony, coming after a concerted effort by consumers and lawmakers to steer consumption downward. If China continues to increase its use of oil at the average pace of 6 to 7% a year, as it has since 1990, it will consume as much as the United States in more than 20 years.

But China bristles at criticism of its growing oil use, noting that per capita it will remain a small fraction of US consumption for decades to come. Moreover, industrialised nations all relied on heavy petroleum use as they developed. Why should we be penalised, the Chinese ask, for coming late to the game?
 
 
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Impact of rising fuel prices on American motorists
 
Billions of miles of less driving
 
Motorists in the United States drove 9.6 billion fewer miles in May 2008 than in May 2007.

 According to federal data released on Monday, since November 2007 Americans have driven 40.5 billion fewer miles compared to the same period a year earlier.

 The record prices of fuel are forcing motorists in the United States to cut down on the use of their vehicles.

 They are cutting the number of car trips they take, and they’re walking, taking carpools and sometimes simply staying home instead. 
 
 
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Commodity briefs
 
 
• Kuwait rents rice farm in Cambodia to meet food demand

• Vietnam urged to remove or adjust rice export taxes

• Major slide in commodities index suggests boom is over

• Further tax hike in Germany may shut down more bio-diesel makers

• European wheat falls to eight-month low

• Tight supply pushes up Burundi tea prices

• Kenyan tea prices increase on lower volumes

• Russian sunflower oil exports jump in June from previous month

• Australia debates whether it is to cease rice production

• Philippines coconut oil exports rose in June

• India to import 1 million tonnes of edible oil a month, says official

• Egypt expects 13% rise in wheat planting to replace imports

• South Africa expects one-fifth rise in wheat output

• Rise in US ethanol production is likely to be short-lived

• Petrobas opens new biodiesel factory in northeast Brazil 

Crude oil prices

As at 07/08/08

Nymex Crude Future 118.94 US dollars per barrel
Dated Brent Spot  116.41 US dollars per barrel