25 June 2013 07:23 [Source: ICIS news]
By Pearl Bantillo
SINGAPORE (ICIS)--Petrochemical players in Asia are keenly eyeing credit developments in China that can sway market sentiment and drive down product prices, industry sources said on Tuesday.
Concerns about a looming credit crisis in the world’s second biggest economy heightened following Monday’s call by the People’s Bank of China’s (PBoC) on lenders to strengthen their control on credit growth, causing its stock markets to tumble.
China’s central bank deems the current liquidity level in the financial system is “reasonable” and has not indicated an inclination to shore up money supply in the financial system.
The Shanghai Stock Exchange Composite Index is on its second day of steep falls. At 06:36 GMT, the index was down 67. 37 points or 3.45% at 1,885.50 points.
A credit squeeze in China will ultimately lead to a further slowdown in its economic expansion, prompting major financial institutions to cut their GDP growth forecasts for the country.
China is the largest consumer of energy in the world and the biggest importer of petrochemicals in Asia. A significant deceleration in its economic growth could have widespread repercussions on overall commodities trade.
At 13:49 Singapore time (06:49 GMT), US crude futures were trading 33 cents/bbl lower at $94.85/bbl, while Brent crude was at $100.89/bbl, down 27 cents/bbl from the previous close.
Players in the Indian polyolefins market are closely tracking developments in China, which is the key plastics market.
“If credit dries up in China, we will see panic in many parts of Asia, including India,” said a Mumbai-based trader.
The regional naphtha market continues to be beset by a supply glut, with India exporting 750,000-800,000 tonnes in July, and with close to a million tonnes in deep-sea cargoes flowing into Asia in the same month, traders said.
The oversupply situation may ease based on firmer downstream ethylene prices which will keep Asian crackers running at high rates, they said.
Still, the lacklustre manufacturing data in China weighed on the naphtha market.
“It is puzzling that the [ethylene] market is improving. Isn’t the Chinese economy dying?” remarked a naphtha trader.
Ethylene prices in Asia rose by $10/tonne (€7.60/tonne) at the upper end of the range to $1,250-1,270/tonne CFR NE Asia on Monday, according to ICIS.
Ethylene prices were stronger mainly because of tighter spot cargo availabilities from Taiwan, market participants said.
Concerns about tightening liquidity in China, prompted HSBC and Barclays to shave their growth projections for China to 7.4%, according to media reports.
Singapore-based DBS Bank Research lowered its GDP forecast for China to 7.5% from 8.0% previously.
“We have revised down our forecast for GDP growth this year by another 0.5% and now
expect 7.5% annual average growth in 2013,” it said in a note on Tuesday.
In the first quarter of this year, the Chinese economy grew 7.7% - slower than the 7.9% clip recorded in the last three months of 2012.
For the whole of last year, China’s actual GDP growth at 7.8% was its slowest in 13 years, and the Chinese government is officially targeting a lower rate of expansion of 7.5% this year.
New data on China’s manufacturing sector are far from encouraging.
Initial reading from investment bank HSBC on the country’s purchasing managers’ index (PMI) indicated contraction for June. HSBC’s flash China PMI at 48.3 was at a nine-month low, largely because of deterioration external demand.
“We believe recent PMI and interbank liquidity datapoints from China point to increasing macro uncertainties as authorities attempt to engineer a more sustainable albeit slower tempo of growth,” according to Singapore-based OCBC Research.
Additional reporting by Felicia Loo, Muhamad Fadhil and Viola Pan
($1 = €0.76)
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