Commentary: China woes hit Asia chemicals

06 June 2014 10:06  [Source: ICB]

As China’s government attempts to rein in spiralling levels of personal and corporate debt by tightening credit limits in the official and shadow banking sector, chemical producers in Asia are feeling the pinch.

As manufacturers – used to easy credit conditions – struggle to finance or refinance their debt requirements, activity is slowing, and demand for chemicals is declining. Add to that the ramp up in China capacity expected this year and the outlook appears weak in many products.

HSBC’s manufacturing purchasing managers’ index (PMI) for China rose only marginally to 49.4 in May, indicating that output is still contracting. This is the fourth month in a row that falling output has been reported.

As this week’s price trends section shows, lacklustre China demand has become an important factor in regional styrenic, expandable polystyrene (EPS) and acrylonitrile (ACN) markets.

Asia petchemsAsian polystyrene (PS) and acrylonitrile-butadiene-styrene (ABS) producers and traders have found demand stagnating in China in recent weeks, failing to maintain a temporary uptick seen in April. Buyers are maintaining low stock levels as they expect poor demand conditions to continue for months. One convertor said orders for exports are down by over 10% this year. Operating rates for PS and ABS are in the low-70% range while in Taiwan they have fallen to around 60%.

EPS manufacturers say the pickup in demand has not materialised for resins usually seen during the peak China construction season which got underway in May. China EPS operating rates are in the low- to mid-50% range compared with a typical rate of 60-70% during peak seasonal demand.

Meanwhile in Asia acrylonitrile (ACN), the demand picture is no better. Weak consumption from downstream ABS and acrylic fibre allowed ACN prices to dive by 7.4% from March to May. And this was despite a heavy plant turnaround season tightening supply.

Poor export markets in Europe and the US are also depressing demand. News that the European Central Bank is to lower its deposit rate for commercial banks to -0.1% shows how worried central bankers are about the region’s nascent recovery.

Eurozone economic growth is only 0.2% while inflation edged down to 0.5% in May, well below the ECB’s 2% target.

By: Will Beacham
+44 20 8652 3214

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