Comment: Lower exports keep Asia in rough patch

21 May 2012 00:00  [Source: ICB]

The mood at the Asia Petrochemical Industry Conference held in Malaysia last week was markedly subdued. The sector has faced a challenging year, as demand has not met expectations and margins have been squeezed from high feedstock costs. The rough patch could continue as underlying demand, especially in China's polymers sector, remains weak.

China petrochemical and polymers demand has not materialized as expected, as exports of finished goods - to Europe in particular - are suffering from the consequences of weak global economies. The first sign of a recovery in China's petrochemical market should come from plastic converters coming back into the market, notes Nexant senior consultant Mazlan Razak.

He says one key indicator to watch is investment bank HSBC's China Manufacturing Purchasing Managers' Index (PMI). This reflects the activity of small and medium-sized enterprises (SMEs) - such as converters - rather than the PMI of the China Federation of Logistics and Purchasing (CFLP), which focuses on the activity of larger firms.

The indexes have diverged sharply in the past few months, with the HSBC PMI indicating contraction and the CFLP PMI showing expansion, posting five consecutive higher readings. The latest April reading for the HSBC PMI was 49.3, while the CFLP PMI was 53.3.

By: Joseph Chang
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