11 January 2013 11:44 [Source: ICIS news]
By John Richardson
PERTH (ICIS)--Thank goodness for small mercies. The last month-and-half has been very good in China for at least one polyolefins trader and one producer after what, on the whole, was a very disappointing 2012.
"I thought there would be a mini-rebound in pricing in early November, and I was correct," said a Singapore-based trader.
"Prices then retreated slightly before a stronger rally began in late November."
A source with one global polyolefins producer has also reported that, volume-wise, his company enjoyed a very good fourth quarter.
But a source with a second producer, based in North America, still believes that only Chinese converters with an urgent need to fulfil orders before the Lunar New Year, which this year falls on 10 February, have increased their resin purchases.
“Most fabricators are maintaining hand-to-mouth purchasing because of the uncertain outlook,” he said.
The recovery since early December appears to have been driven by:
Reasons to be cautious about the sustainability of the recovery include:
“I think the key to the length of the stock market and commodities rally is how long it will take before enough of the right kind of people worrying about the need for the US to raise the debt ceiling,” added the Perth-based analyst.
“The avoidance of the fiscal cliff was a fiscal fudge. It solved absolutely nothing, but markets will seize on any slight good news as an excuse for a rally.”
The US Treasury Department would, by late February or early March, run out of options to cover US debt and could begin to default on government loans, unless Congress reaches a deal on the debt ceiling, wrote the Associated Press in a 9 January article
Economists had warned a default might trigger a global recession, it added.
“The deal on the fiscal cliff has left Democrats and Republicans further apart, with deep divisions within the Republican Party,” said the investment analyst.
Events on the ground in China might seem a long way from the US debt crisis.
But polyolefin producers point out that a key issue for Chinese growth this year will once again be the strength of its finished-goods exports to the west (many of these finished goods are from made locally-made and imported resin).
“I have written off Europe – I cannot see any hope for the eurozone this year. All I can realistically hope for in the west is that the US does get past the debt ceiling,” added the source with the second polyolefins producer.
The other key uncertainty is Chinese government policy.
Following the leadership handover last November, polyolefins producers and traders expect a “steady as she goes” approach by the new politburo, involving modest economic stimulus and, on the surface at least, economic reforms.
If the external environment weakened substantially, however, (for example because of a US debt default or a new crisis in Europe), Beijing might be forced into a big new stimulus programme, said the producers and traders.
This could add to concerns about inefficient investments and bad debts, while delaying the reform agenda.
Returning to the more immediate outlook for polyolefins, the source with the second producer said: "From late February/early March, when the Chinese New Year is over, plants have returned from turnarounds, new capacities start to come on-stream and the debt ceiling issue has come to a head, we should get a real idea about the strength of demand."
“Markets will quieten down in China from 15 January, ahead of the New Year, and so we are going to have an extended period of uncertainty.”
On a positive note, uncertainty is one thing that polyolefin producers and traders have become much more accustomed to dealing with since 2008.
Additional reporting by Ong Sheau Ling, Helen Lee, Becky Zhang and Nurluqman SuratmanRead Paul Hodges’ Chemicals and the Economy blog
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