FocusChemical producers seek certainty about China’s rate of growth

04 June 2013 22:02  [Source: ICIS news]

By Jeremy Pafford

COLORADO SPRINGS, Colorado (ICIS)--China’s slowing growth rate has companies doing business there concerned about a lack of certainty upon which they can build, three CEOs of chemical producers said on Tuesday.

“Ultimately, that economy is so important to everybody, regardless of whether you’re a US competitor, a European competitor, somebody who is in Asia,” said Jim Gallogly, CEO of Netherlands-based LyondellBasell. “If China takes off, that’s positive for everyone.”

Gallogly and fellow company executives Pierre Brondeau of FMC and Craig Morrison of Momentive Specialty Chemicals made their comments during an interview at the American Chemistry Council’s (ACC) annual meeting.

Petrochemical companies are finding a disconnect between the reported data and forecast numbers for China’s GDP and what they are experiencing on the ground, Gallogly said.

In May, China posted Q1 2013 GDP growth of 7.7%, which was below forecasters’ consensus of about 8%.

Later in the month, the International Monetary Fund (IMF) cut its forecast GDP growth for China this year to “around 7.75%” from 8%. The projection is near last year’s 7.8% expansion but is slightly higher than China’s official target of 7.5%.

However, Gallogly said growth in China feels as if it is in the 4-6% range instead of the 7% range.

Brondeau echoed those sentiments, saying that China’s softer economy this year has been a surprise. The issue is twofold, he said.

“The fact [is that] China is not growing at the expected rate we would be expecting at this time of year, combined with the fact that on expectation of faster rates, there has capacity buildup in China in 2011-2012, which following a slower couple of years, 2012 and 2013, have been creating overcapacity,” he said.

Brondeau added: “I think I’m pretty anxious to see them getting back to numbers in the 7-8% because it does not feel at all … that we are close to those numbers.”

The Chinese government at the national level has been attempting to cool down its economic expansion after years of double-digit growth, but that is occurring contrary to what provincial governments are seeking at the local level, Brondeau said.

“You have the government which is trying to cool down the industries, the economies. But then you go down to the province level, and the heads of the provinces don’t want to have less employment – they want us to grow employment,” he said. “So they are pushing capacity within their own manufacturing facilities. … So you have those two forces that are fighting each other.”

The provinces are growing at different rates as well, Gallogly said.

“It’s different than it was five years ago,” he said.

Add in the fact that China is a state-run economy, and it makes for a challenging yet important environment, Morrison said.

“It’s just a different set of rules you’re playing by,” he said.

More than anything, chemical producers hope China will return to a predictable growth pattern that businesses can plan around, Brondeau said.

“A highly predictable, well-organised 5% per year, I would take that – it’s not a bad number. The problem is more the uncertainty in the way we go about it. At 5%, if you build for 8%, then [you get] overcapacity” and pricing issues, he said.

The ACC annual meeting concludes Tuesday in Colorado Springs, Colorado.


By: Jeremy Pafford
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