Commentary: China’s building crash helps ease the Hormuz pain

THE FULL EXPLANATION 

But the behaviour of property developers doesn’t explain everything. Trucks are now switching to battery power at a remarkable pace, as we’ve written.

Still, that’s unlikely to be able to explain a drop-off as sudden as we’ve seen. Uptake of battery vehicles has been far quicker by China’s gasoline-consuming car and scooter drivers, but the process of electrifying an entire fleet is gradual. The drop in gasoline output since March has been remarkably quick, but still not as fast as diesel’s slump.

The depth of the demand decline from the crashing housing market has also likely been softened by the way that China’s refiners have switched from making transport fuel to petrochemicals in recent years.

Output of plastics and naphtha, a feedstock used in making chemicals, was only just shy of its highest levels on record in June. In recent months, China has been producing a larger tonnage of raw plastics than gasoline.

That reversal may have been accentuated by the disruption in Hormuz, but it looks more like the fulfilment of a long-term trend. Nearly a decade ago, Mukesh Ambani, whose Reliance Industries owns the world’s biggest oil refinery at Jamnagar in India, predicted the future of oil lay in petrochemicals rather than fuel. His forecast is now playing out.

Should Hormuz reopen, you’d expect to see some recovery for diesel. Transport, mining, and agriculture still make up the majority of China’s demand, with construction likely accounting for less than a fifth of consumption.

But with sales of electric trucks now making up about a third of the total and the government targeting a 40 per cent sales share by 2030, the broader market is falling far quicker than any hoped-for recovery in the building trade.

If filling your gas tank isn’t even more expensive this summer, you should thank China’s abandoned building sites.