UpdateAsia petchem shares fall; Europe ratings fuel demand fears

16 January 2012 11:08  [Source: ICIS news]

(adds comments from IMF executive, closing levels of indices)

SINGAPORE (ICIS)--Shares in Asian petrochemical companies closed lower on Monday on concerns over a worsening debt crisis in Europe, where nine countries have been issued with ratings downgrades from US credit ratings agency Standard & Poor’s (S&P).

Asia is vulnerable to the economic woes of the industrialised West because of the region’s reliance on exports for growth.

Exports from the region will take a heavy beating if another recession were to hit the US and the eurozone.

In Japan, shares in Mitsubishi Chemical were down by 0.71%, while those in Mitsui Chemicals fell by 2.14% and those in energy and materials company JX Holdings declined by 2.17%. The benchmark Nikkei 225 index fell by 121.66 points, or 1.43%, to close at 8,378.36.

In South Korea, Kumho Petrochemical slumped by 3.37%, Hanwha Chemical fell by 2.65% and energy and chemical group SK Innovation eased by 0.64% as the KOSPI composite index dipped by 16.41 points, or 0.87%, to settle at 1,859.27.

In Hong Kong, Sinopec Shanghai Petrochemical Co fell 2.01% and PetroChina slipped by 0.91% as the benchmark Hang Seng index declined by 192.22 points, or 1.00%, at 19,012.20.

The China Shanghai composite index also settled 38.39 points lower, or down by 1.71%, at 2,206.19.

The risk of recession heightened in the eurozone after France and Austria lost their “AAA” investment-grade sovereign rating. Italy, Spain and Portugal, meanwhile, received a two-notch downgrade.

Seven of the nine countries downgraded were given a negative outlook by S&P, indicating a risk of further cuts in sovereign ratings.

The US, the world’s biggest energy consumer, lost its “AAA” rating in early August 2011.

“At the global level, the pace of economic activity is weakening, and the risks for Europe and the world are high,” International Monetary Fund (IMF) first deputy managing director David Lipton said in a statement.

Without strong policy actions, Lipton said, “Europe could be swept into a downward spiral of collapsing confidence, stagnant growth, and fewer jobs”.

He added: “In today’s interconnected global economy, no country and no region would be immune from that catastrophe. This is especially true for Asia,” citing Asia’s trade and financial links with Europe.

With the industrialized economies of the West possibly facing another downturn, Asia will have to rely on its domestic economies for growth.

In China – the world’s second-biggest economy – a combination of tight monetary policy and slowing exports saw the economy slowing down its pace of growth since the start of the year.

“Fourth-quarter 2011 GDP to be released this week is projected to grow 9.0% year on year, concluding growth for 2011 at 9.3%. Growth momentum has been clearly decelerating in [the quarter] as evidenced by dwindling external demand and slower fixed asset investment growth,” Singapore-based bank DBS Group Research said.

The weakness of external trade is likely to continue onto the first quarter of this year, it added.

“Contribution of trade to growth will be much less than last year. This situation naturally calls for stronger domestic demand,” the bank said.

For the current year, DBS Bank Research said it is “optimistic that China can achieve 8.5% growth”.

Meanwhile, Lipton said the IMF and Asia could work towards enhancing economic and financial surveillance for crisis prevention and strengthening the global financial safety net.

Read Paul Hodges’s Chemicals and the Economy blog

By: Pearl Bantillo
+65 6780 4359

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