10 August 2012 14:45 [Source: ICIS news]
By John Richardson
PERTH (ICIS)--First-half GDP growth in ?xml:namespace>
But chemicals and polymer industry executives have been saying throughout this year that what is happening at ground level feels very different from the headline growth number.
One reason is that inventories continue to clog-up the synthetic resin supply chain, all the way from polymer producers down to finished goods, according to a HSBC report released in June.
Another factor behind the pessimism that pervades just about every discussion with sales and marketing executives responsible for
"The SMEs have less money than they had in late 2008. The reason is that the banks are not prepared to lend money to the SMEs because they are worried about rising bad debts and the effect on their share prices.
"In the past, when the government had more control over the state-owned banks, they could order them to lend to anybody, but now the banks are partially listed and so have to also listen to their shareholders.
"The big companies still have easy access to money. But smaller plastic processors are running at operating rates of below 60% compared with 90-100% in 2010."
Banks are worried about SMEs going bust.
“Some 20,000 SMEs are expected to go bankrupt in the
“As far as the privately-owned small business sector goes, there is little confidence to either lend or borrow money.”
A vicious circle is developing: As the number of SME bankruptcies increases, bank lending is being further curtailed resulting in even more bankruptcies.
There has been a lot of talk of increased government economic stimulus in the second half of 2012 leading to a rebound that will benefit every sector of the economy, including the SMEs.
Some economists, however, have expressed concern that this stimulus will mainly focus on local government infrastructure projects that will add to bad-debt problems and cause further environmental damage.
There are also doubts over the degree to which small businesses will benefit from building more roads, bridges and airports.
The polyolefin industry executive believes
“The current leadership is just biding time until the changeover,” he said.
He added that only a few months ago,
“Now the government is extremely worried about deflation,” he said.
Producer prices fell by 2.9% year on year in July as against a 2.1% decline in June 2012.
"This reflects what our customers in
"While they have seen their costs increase as a result of higher wages and more expensive fuel costs, they have been losing pricing power because demand is so weak.
"On a recent trip to
“People don't want to spend money in the shops because they are worried about losing their jobs. They are also delaying purchases because they think prices are going to fall."
Steel production is seen as a benchmark for wider industrial activity.
A weaker economy is also reflected in petrochemicals demand data.
For example, PE demand fell in the first half of this year, according to Global Trade Information Services.
First-half demand, as the chart below shows, was down by 1% (red column) versus the first half of 2011 (green), and was down by 3% versus the first half of 2010 (blue).
Imports were also down by 9% versus 2010 with exports up by 82%. The exports represented re-exports, after traders had failed to find customers in
“The sooner the leadership transition is finished the better, as we should then see economic policies that get the manufacturing sector going again,” added the senior executive with the first global PE producer.
“The good news about the threat from deflation is that it gives
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