06 November 2009 16:03 [Source: ICIS news]
By John Richardson
SINGAPORE (ICIS news)--If you are selling chemicals in China and only focusing on your year-end bonus what happens next year might not matter. Anyone with a longer-term perspective should probably take a slightly different view.
The hope for short-sighted traders is that the boom will continue until end-December and there is every chance this might happen. Production at new Chinese and ?xml:namespace>
It’s not just those with a longer-term view who should be worried, but also anybody who looks beyond
Lower raw-material import tariffs, increased export tax credits and a yuan now linked to the US dollar (as a result, very much down in value during 2009 against several other Asian currencies) means that China has an even bigger edge than normal in export markets.
There is also, perhaps, the biggest advantage of all - mountains of very cheap bank loans.
“Now it starts to make a little more sense," said a polymer industry source. While the stimulus package has added a lot to domestic consumption, the surge in polymer imports of more than 50% doesn’t add up when you measure this against the fall in overall exports.
Local auto and construction industries are booming, sucking in lots of chemicals.
But a very macro level, of the 7.7% of GDP (gross domestic product) growth recorded for the first nine months of this year, 7.3 percentage points was accounted for by investment and only 0.4 of a percentage point by consumption growth.
Gains, though, could have been made in specific export sectors at the expense of higher-cost competitors.
One example of big gains is reportedly in electronic goods shipments to the
"Reductions in raw-material import tariffs and increases in export-tax rebates have helped Chinese apparel producers push their prices down," said Ying Min Ye, president of Beijing-based Chem1 Consulting at last month’s Downstream Asia Roundtable Asia oil and gas event in
You could use this to help explain the 5% rise in monoethylene glycol (MEG) imports in the six months to end-July.
In September, imports hit an all-time for any one month at 551,113 tonnes.
The largest supplier of clothing to the
Export orders at the recent Canton Trade Fair were 16% higher than the previous fair, which took place in May. Total contracts won rose to $30.5bn with the biggest increases seen in orders for electronics and appliances, and machines.
But wouldn’t any other country in
The government has made it very clear that it wants to rebalance the economy towards stronger domestic growth over the long term, and huge infrastructure investment is towards this end.
If you take this view, when economic stimulus shifts away from supporting exports, chemicals import volumes will slip.
If this doesn’t happen quickly enough to keep manufacturing industries and politicians happy in the rest of the world, we could see a rise in protectionism that could also jeopardise these imports.
The rise in local chemicals capacities, part of the government’s big investment splurge, is another risk.
Plants brought on-stream this year are likely to be fully operational in 2010 with more start-ups planned for next year and beyond.
Most importantly, does the export market-share story stand up at all? Is it just a weak after-the-fact explanation because we don’t have adequate domestic demand data from
“It’s certainly true that lower costs have helped China produce more goods in general, but we are going to see a lousy Christmas selling season in the US and Europe - you can depend on it,” said a US-based industry observer.
“You will then discover that a lot of stuff that’s been made is sitting warehouses.”
Statistics can also be used selectively and, therefore, misleadingly.
The Textiles Intelligence report, for example, adds that the 3.9% percentage point rise in Chinese exports to the
In a stronger economy the increase would have much greater as the
One thing is clear: Nobody this correspondent has talked to (and he’s talked to an awful lot of people) can fully explain staggering chemicals imports numbers.
For the time being, though, why worry? Be happy and look forward to your year-end bonuses.
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