Better global manufacturing sentiment to lift petchems demand

02 July 2009 06:10  [Source: ICIS news]

By Pearl Bantillo and Judith Wang

SINGAPORE (ICIS news)--Industries across three major economies indicated improving sentiment in June, sparking hopes that demand for petrochemicals will be better in the second half of the year, analysts said on Thursday.

China, the US and Europe showed better readings in their respective Purchasing Managers’ Index (PMI), which is a barometer of manufacturing activities of an economy.

However, manufacturing industries have remained in contraction mode in the West, with PMI numbers still below the 50-point threshold.

The petrochemicals industry would benefit as global industries gradually ramp up production, although demand is expected to stay soft for the rest of the year as uncertainties over the global economic recovery remain, analysts said.

“Petrochemical demand will show a better performance on a month-on-month basis in the second half of this year, but demand [will] depend on the recovery of housing and construction sectors,” said Yu Chunmei, analyst from Shanghai-based Shenyin Wanguo Securities.

China’s PMI numbers remained in an expansion mode for the fourth month in June, rising to 53.2% from May’s 53.1% in May.

The Eurozone, on the other hand, had a 42.6 reading in June from 40.7 the previous month, while the US’ Institute of Supply Management (ISM) index improved to 44.8% from 42.8% in May.

These are by no means very bullish numbers as economies continue to struggle with the worst crisis to hit in decades, economists said.

“The fear factor has diminished – the companies are not drowning, they are now sticking their heads above water but they are still in the water,” said Song Seng Wun, regional economist at Malaysian brokerage CIMB-GK, describing the numbers as just “less bad”.

The improvement in manufacturing activities continued to be led by restocking of depleted inventories but other vital economic data like jobs remained grim, while consumer confidence had yet to be restored, economists said.

“[The] PMI numbers are not actual production but just sentiment. While all these essentially suggest that the worst of the contraction may be behind us and we get a bit of rebound from very a deep bottom, we should remain wary about what kind of recovery we will get in the coming months,” said Song.

“[The] question again is [on the] quality of recovery,” he said.

At best, the global economy is stabilizing, with recovery unlikely to happen until next year, said Yi Lei, a Beijing-based economist at Shanxi Securities.

“Consumer sentiment is still relatively fragile,” said CIMG-GK’s Song, citing the continued decline in automotive sales in the US despite the government incentives being given out to encourage buying.

Car sales in the world’s biggest economy slumped 28% year-on-year in June.

“Whether the global economy will ride on the recovery road from the second half of this year, we have a doubt,” said Li Hongrong, Shenzhen-based economist at Ping An Securities.

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Author: Pearl Bantillo
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