12 April 2010 06:14 [Source: ICIS news]
(Revises headline, lead and 12th paragraph for clarity. Adds disclosure in fourth paragraph about CBI's relationship with ICIS news.)
By John Richardson
SINGAPORE (ICIS news)--Polyethylene (PE) and polypropylene (PP) demand growth in China is expected to drop dramatically this year through at least 2012 as a result of a slight easing in the country’s huge economic stimulus initiative, said producers and a consultant on Monday in reaction to industry estimates.
The latest demand-growth estimates from Shanghai-based commodity information service CBI (see table below for full data) were in line with producers' forecasts, according to sources and the consultant.
For example, CBI predicts that overall PE demand growth will decline to 8.6% in 2010 from 30.3% last year.
CBI is a joint venture with Reed Business Information, which owns ICIS news and is part of the Reed Elsevier Group.
“Reduced liquidity, the result of the cutback in new bank lending, will contribute to a less ability by traders to speculate in polyolefins. This will take some of the froth out of the market,” said a Singapore-based source with an Asian PE producer.
“And I think construction of residential property is likely to drop, along with speculation in this area also, as the government cools the sector down. This will have direct and indirect effects on polyolefins demand.”
The other big factor behind what is expected to be a steep drop in demand-growth percentage increases is that growth in 2009 was from a relatively low base as a result of the 2008 economic crisis, added a source with a North American producer.
The source said he fears that temporary factors behind last year’s exceptional growth have lulled the global polyolefins industry into a false sense of security.
“I am afraid that a lot of managers in petrochemical companies have forgotten the fact that a lot of new capacity is coming on stream. They seem to want to hear only the good news – high prices, etc,” he said.
His concern, which has been echoed by other industry players and observers, is that lower growth rates in
New ethylene capacity will total 9.5m tonnes/year in 2010 in Asia and the
But a southeast Asia-based petrochemicals consultant, who agreed that trough conditions for global polyolefins are likely to arrive by the fourth quarter of this year, said: “I have a fairly optimistic view of the market in China because I think the multiple at which polyolefins will grow over GDP (gross domestic product) is actually increasing.”
“This is the result of rising domestic consumption as people get wealthier.
“The multiple was more or less flat in 2008-2009, meaning it grew at about one times GDP. Over the next few years, I expect it to rise to 1.2-1.5 times the expansion of the overall economy,” said the consultant.
But other industry observers, such as UK-based chemicals consultant Paul Hodges, have warned about the danger of investment bubbles in
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