FocusChina's new property-cooling steps worry petchem players

18 February 2011 06:35  [Source: ICIS news]

Shanghai residential estatesBy Fanny Zhang

GUANGZHOU (ICIS)--Housing demand in China might crash following adoption of new government measures aimed at keeping a lid on property prices, and can lead to significantly lower consumption of selected petrochemical products, industry sources and analysts said on Friday.

The country’s latest round of property-cooling measures, which would curb new home purchases, were by far the most severe to be implemented, analysts said.

With the government taking more serious steps on preventing a property bubble, the hit on overall housing markets would likely occur in six months’ time, analysts said.

Consequently, demand for housing and construction-related petrochemicals, including polyvinyl chloride (PVC), high-density polyethylene and coating additives like methyl methacrylate (MMA), would decline, analysts said.

“Coating demand in housing decorations would definitely fall if housing markets falter,” said an industry source.

China is the biggest importer of petrochemicals in the region and its buoyant housing sector has been key in supporting product prices in Asia.

“Once sentiment turns bearish or a downward trend [in housing demand] sets in, recovery would be a long rocky journey,” said a plastics manufacturer.

But sales and production strategies for the housing-related petrochemicals would stay for now, industry players said.

“We need to see how markets go for a while,” said the plastics producer.

Beijing announced late on Wednesday the restrictions on home purchases.

Effective 17 February, a family bearing a household certification living in the city can only buy a house if it has yet to own one or has only one existing house. Families owning two to more houses would be prohibited from making further purchases.

Outside the Chinese capital, controls on home purchases should be set no later than 20 February, based on directives from the central government.

“It’s just like nobody can buy now and prices could only go south on transactions drops,” said Song Qiu, a Guangdong-based property developer, adding that those who are qualified to purchase homes do not have enough buying power.

Beijing and Shanghai had started to see significant declines in home buying transactions since China has continued to introduce measures to cool its overheating property sector, analysts said.

“Housing prices in first-tier cities like Beijing and Shanghai are expected to drop at least 10%. If not, there would be stronger polices as the government has been determined on bringing down the prices,” said Zhang Weilin, a property analyst at Shanghai-based brokerage Guo Tai Jun’an Securities.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Fanny Zhang
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