The Beginning of Demand Destruction?

Thursday, June 19, 2008 | 03:30 PM

China_suvEarlier today, we looked at the decrease in miles driven in the US (Chart of the Day: US Miles Driven). Let's put that into some context,  and consider a few goings on in China.

SUV sales may be falling off the cliff in the US, but in China, they are red hot. Sales of the large vehicles in China rose by 40% in the first four months of this year. That is twice the growth rate for the Chinese passenger car market.

Its no surprise why: The costs of petrol and diesel in China is as much as 40% cheaper than US levels (which are nearly half of European prices).

China, the second-biggest fuel consumer after the U.S, has been encouraging SUV purchases via subsidized fuel.

That now appears to be changing: The Chinese givernment  will "increase gasoline and diesel prices by 1,000 yuan ($145.50) a ton, the National Development and Reform Commission said," according to a Bloomberg report. This represents a 17% price increase for gasoline and 18% for diesel. China is also scheduled to raise jet-fuel prices by 1,500 yuan a ton (~25%).

The response in Crude futures was immediate: Crude Oil fell almost $5, spurring gains in the broad averages.

Demand Destruction is now clearly upon us. Its a cliche, but its true: The best cure for high prices are high prices.


>


Sources:
SUVs still roaring up China’s sales charts   
Geoff Dyer in Beijing
FT, June 17 2008 17:50
http://www.ft.com/cms/s/0/f94b6be0-3c8a-11dd-b958-0000779fd2ac.html

Oil Falls More Than $4 as China Announces Fuel Price Increase
Mark Shenk
Bloomberg, June 19  2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOnglhUaGIYo&

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Thursday, June 19, 2008 | 03:30 PM | Permalink | Comments (25) | TrackBack (1)
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Tracked on Jun 20, 2008 4:19:07 AM

Comments

"The best cure for high prices are high prices."

Provided we all survive the 'cure'.

Posted by: Chief Tomahawk | Jun 19, 2008 3:49:10 PM

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