13 January 2010 16:48 [Source: ICIS news]
By John Richardson
Extreme optimists are even tentatively beginning to suggest that if new capacities continue to be drip-fed into markets, and if start-ups remain blighted by problems, there might not be a catastrophic supply-driven downturn after all. This seems exceptionally unlikely given the amount of volumes yet to arrive.
But the doom-mongers have been predicting the end for 12 months now and yet the price recovery continues.
“January has started out exceptionally well in polyolefins because there was a 6-8 week buying holiday in Southeast Asia towards the end of last year,” said a source with a global polyolefins producer.
This was the result of the wait for zero tariffs to come to into effect on 1 January 2010 under the ASEAN (Association of Southeast Asian Nations) free-trade agreement. Six countries have implemented zero rates for imports which include polyethylene (PE) and polypropylene (PP). These are
This pent-up demand has occurred at the same time as a plethora of production problems, including those at SABIC in
“Supply difficulties have also been caused by cold weather in
High oil and naphtha prices had offered further support but the demand outlook was uncertain, he added.
“We won’t get a clear view on demand in
The official holidays take place on 13-19 February, but nobody will be able to make sense of fundamentals for several days, possibly even weeks, before and after this break.
A worrying indication of what might be the real state of underlying demand in
“The steady improvement in naphtha-based ethylene margins since mid-October continued. Higher ethylene prices and stronger co-product credits outweighed rising naphtha values,” said the ICIS Asian Weekly Ethylene Margin Report for 8 January.
The same trend is reflected in the weekly
Integrated low-density PE (LDPE) and high-density PE (HDPE) margins continued to improve.
“But the end-users are being absolutely slaughtered,” said a source with a second global polyolefin producer.
This was confirmed by a very gloomy Australian-based converter who said that he “didn’t buy the recovery story”.
Even export-focussed processors in
One could argue that as most converters are small or medium-sized, they are bound to feel the squeeze during an era of global cost-cutting.
But one of the biggest industrial species has also consistently lost money over the past 12 months.
“Refining remains a struggle in
“What’s going on? I still don’t get it. Despite the record-high auto sales in
The famous short-seller James Chanos, who made a fortune from predicting the collapse of Enron and the sub-prime crisis, shares the same mistrust of Chinese data, according to a recent report in the New York Times.
“Bubbles are best identified by credit excesses, not valuation excesses,” he has been quoted as saying.
Many economists and other investors disagree with Chanos, but
The credit surge has also made it easier to trade in chemicals, polymers and other commodities during a period when maximising Yuan revenue has been the focus - ahead of a possible revaluation of the currency at some point this year.
“There’s a lot of talk about hot money flowing in from overseas, but most of this is locally-held money being shifted from dollars into Yuan,” said a Shanghai-based US expat.
“Because bank deposit rates are negative in real terms and financial markets are undeveloped, the only ways to make money are in real estate, equities and commodities.”
So, as we’ve written before, could petrochemicals have benefited from tight supply, overproduction of finished goods and a speculative frenzy - all of which must surely eventually come to a sorry end?
The supply-side story will rumble on and on and so watch this space.
As for the ability to run manufacturing plants hard and speculate on real estate, chemical and equities etc on very easy credit, time might be running out.
China on Tuesday increased the amount banks must set aside as reserves and interbank lending rates have been raised twice in the space of a week - measures interpreted as designed to reduce liquidity.
“There are lots of bubbles here. The average real-estate price in
“But if you look at salaries, a fresh graduate gets Rmb2,000-3,000/month. This is causing a social problem.
“Shenzhen (in southern
And the Shanghai-based expat said that he owned an apartment on
How the Chinese government handles excesses such as these will be crucial to the health of the global economy in 2010, never mind petrochemicals.
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