Market intelligence: China PE brightens

04 January 2013 11:23  [Source: ICB]

China's polyethylene (PE) market might be back at long last following many months of disappointing sales.

"The mood has turned around since October. Our November sales were very strong and December business has been good," said a source with a global polyolefins producer.

"This is in contrast to Q4 in 2010 and 2011 when prices collapsed as a result of weaker sentiment and the usual wind-down towards the end of the financial year," the source added.

The recovery was partly due to stocks being low in October, but was also the result of renewed confidence that more government help was on the way for China's small and medium-sized enterprises (SMEs), the source said.

Buying sentiment among China's SMEs is crucial for the health of the whole polymer market, not just PE, as they account for the majority of the country's resin buyers. They are also responsible for the bulk of the country's overall economic activity and employment.


Li Keqiang and China's new leaders take a new approach

Copyright: RexFeatures

The SMEs have struggled to access credit since April 2011, which is one reason why China's PE demand growth was disappointing last year and is likely to remain so in 2012. Global Trade Information Services data shows that PE demand grew by just 4% in January-October this year compared with the same periods in 2010 and 2011.

Renewed confidence among the SMEs that they would soon be given more policy support was the result of comments made by China's new leaders, continued the source.

"The leaders are talking about serious economic reform, which will involve raising the role of the private sector in the economy (the SMEs are part of the private sector), and they have already started a major crackdown on corruption," he said.

"When Hu Jintao came to power ten years ago, he talked about dealing with corruption but it was all talk as nothing happened," the source added. "This time it seems to be different."

ICIS blogger Paul Hodges said in an 18 December post: "China's new leaders have made a good start. It's too early to say whether they will really tackle the key issues, but the change in style is noteworthy in itself:

New premier Li Keqiang made his first official trip to Shenzhen, visiting the statue of Deng Xiaoping along with new president Xi Jinping.

Shenzhen was the city where Deng started his famous Southern Tour in 1992 that marked China's opening of its economy.

To reinforce the symbolism, Li and Xi were accompanied by four elder statesmen from that time, who had met Deng on the tour.

Unlike previous 'inspection tours', security was relaxed and traffic was allowed to continue normally, with no road closures."

The source said that relaxed security during the Shenzen visit sent out a very positive message.

"Xi, for example, walked around a local market with minimum security, even less than would have been the case with Obama," he said. "My customers took this as a sign of an accessible leader who will listen to their grievances."

But a source with a second global PE producer echoed Hodges' comment - that it is too early to tell whether the key issues will be tackled - when he said: "Politicians always make the right kind of noises when they first come into office and so we will have to wait and see whether anything substantial changes."

The list of what needs to be done is long, including reining back the state-owned enterprises (SOE). Their role in the economy is said to have increased since 2009, at the expense of the SMEs.

The second source argued that there had been no significant overall recovery in PE demand since October.

"The mood out there remains very cautious," the source said. "Some buyers are, however, prepared to pay premiums for prompt delivery.

"These buyers probably cut back on contract volumes in order to play in the spot market, only to find themselves short of raw materials to meet January orders for their finished products."

The majority of buyers remained cautious ahead of the Lunar New Year in China, he added. China's Lunar New Year begins officially on 10 February 2013.

"It will only be after the New Year when we will get a clearer idea of whether there has been a genuine improvement in demand," the second source said.

He worries over the impact of additional supply on the post-New Year market.

Saudi Polymers' complex at A-Jubail in Saudi Arabia was shut down because of technical issues on 10 November, but is due to resume production in January. It includes two 550,000 tonnes/year high-density polyethylene (HDPE) plants.

Sinopec Wuhan Petrochemical Co is expected to commission a 300,000 tonnes/year HDPE plant and a 300,000 tonnes/year linear low-density (LLDPE) facility in Hubei, China, in the second quarter next year.

Increased production at other plants that have recently been brought on-stream in Asia might also weigh more heavily on the market.

"Demand growth was supposed to easily absorb this new supply but this clearly hasn't happened," added the second source.

As for 2013, the possibility of another difficult year for China's economy cannot, surely, be ruled out.

By: John Richardson
+65 6780 4359

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