Asian Chemical Connections

This excellent article from The Economist about vertical integration got me thinking that if, say, auto makers start buying up parts suppliers in developed markets (in developing markets the plastics processing industry is too fragmented) we could end up facing a whole new set of industry dynamics.

Buying up your supplier, or at least offering them strategic advice and financing in the way that Toyota does, could end the days of the poor and relatively small converter squeezed between the big petrochemical producers and the giant finished-goods manufacturers. Resin producers might suddenly find themselves facing heavy rather than lightweight opponents.

There are reports, confirmed by one consultant, of a flood of US polyolefin exports from the US to Asia, China in particular.

Staggering polyolefin import figures for China in January-February show big percentage increases both year-on-year and month-on-month. The March data is due out shortly.

The big worry remains how much of this is going into inventories because of the easy credit in China, which, according to some unconfirmed reports will not last much longer. Others, however, predict that the lending binge will support China's economy for the rest of this year.

Alot of the froth in the China market could also be the result of a big up-tick in activity on the Dalian Commodity Exchange.

But to go back to the main point of this blog entry, there are predictions that US ethane versus naphtha costs could remain very competitive for the next two years because of the fall in natural-gas demand.

And with Brazil also rumoured to be an increasingly important polyolefin exporter to Asia, US/Americas-Asia trade flows may be about to enjoy one last hurrah before the Middle East and growing China self-sufficiency slam the door shut - perhaps for good.

Another thought: Could the recent apparent rise in US-Asia exports be the result of producers making hay while an anaemic sun shines (comparatively higher prices in Asia compared with the West) ahead of a possible General Motors bankruptcy?

That's the beauty of blogging - you can raise the questions and ask others to provide the answers!

Petrochemical markets, as is the case with stock markets, are I believe in the midst of a bear-market rally.

As chemicals consultant Paul Hodges predicted on his blog last year, restocking in Q1 was inevitable after the great inventory run-down of the fourth quarter.

Paul has consistently made the right calls on the economic crisis and on its implications for the chemicals industry. His accuracy in predicting the major events - from crude-oil pricing to the collapse of Bear Stearns - can be demonstrated by visiting his blog.

Read his post today which provides are summary of how we got we are and where the global chemicals industry appears to be heading.

Petrochemicals benefited from the Q1 restocking, of course.

We have also seen an across-the-board price rally sustained by a lot of speculation in China made possible by ample availability of credit. The question now is whether credit will be restricted as China becomes concerned over inflation.

Petrochemicals pricing has also been supported by stronger naphtha due to firmer crude, first of all because of refinery rate cuts when the Q4 crisis occurred and more latterly a huge programme of refinery turnarounds in Asia. According to oil and gas consultancy Purvin & Gertz, this turnaround programme is due to come to an end around June.

Naphtha supply will increase in H2 on more exports from India, higher production from one condensate splitter in the Middle East and the start-up of another splitter. Supply could increase in Asia by 20-30%.

I think crude is likely to trade around the $50/bbl mark for the rest of this year so this will set a floor for liquid-feedstock costs.

However,I don't believe that petrochemical producers will be able to use tight naphtha as a justification for maintaining current price levels because of the increased supply.

Petrochemicals supply will also lengthen when Asias' big cracker turnaround season ends after June.

Middle East project delays are likely to continue, but some further extra supply in polyolefins, MEG, aromatics and propylene oxide (PetroRabigh is in the process of starting up the region's first PO plant) can be expected in H2.

The second half of the year could also see the start-up of lots of capacity in China. But how much volume actually hits the markets will have to be closely tracked.

Demand will be better this year than in 2008, but hey, so what?

Last year was exceptional bad because of the destocking, and all the economic uncertainties will not be compensated for by the boost from government stimulus packages.

So, in short, expect feedstock-price support to weaken and for petrochemical supply to lengthen in a persistently weak demand-growth environment.

The big unanswered question is to what extent the recent price prices were also the result of speculation in China. In methanol, an incredible two-thirds of Q1 imports were for speculation on futures markets.

As Paul again points out on his blog, the volume of contracts being traded on the Dalian Commodity Exchange is nothing short of staggering (an average of 1Om tonnes a day during the first quarter!).

Has this contributed to LLDPE prices trading above LDPE over the last few weeks for the first time in two years?

How much of the chemicals and polymers that have been imported into China recently, or purchased locally, and are being held in inventory for speculation purposes? To what extent has this speculation been made easier by increased credit?

With as many as 30m migrant workers laid off in China and export-focused factories operating at only 50% of capacity, how can all this increased chemicals trade be justified by an improvement in the final demand for finished goods?

China's economic stimulus package is kicking in. Over the last few days I hear of improved sentiment in China that the worst might be over.

But given that 10-30% of China's economy (depending on who you believe) is dependent on exports, it would take a heck of an effective stimulus package to boost domestic growth sufficiently to replace all the lost export trade in the second half of this year.

We've also picked up anecdotal reports that factories are being kept running by soft loans from banks for social stability reasons.
It's unlikely that the total extra production will replace all the volumes lost through factory closures.

But at the end of certain product chains you could see China exporting deflation in H2 to relieve inventory - another reason to believe that chemicals pricing will decline in the second half.

However, it might not be in China's interests to flood oveseas markets with goods at bargain-basement prices if this triggers international tensions and a further rise in protectionism.

Overseas chemicals players seem to have benefited from the relative strength of China's market with volumes of benzene and polystyrene, for exampe, being shipped from Europe.

Large increases in polyolefin shipments from the US to China are also being reported, in the case of PE the result perhaps of comparatively cheaper ethane versus naphtha.

The word on the street, from our price-reporting team, is that nobody can really say for certain whether the recent price rises are the result of improved demand or speculation.

But add all the above factors together and it seems a sharp correction from June onwards remains very likely.

And the more uncertain that price direction remains the closer the correlation might be between oil and naphtha and chemicals pricing on a daily, weekly or perhaps even a longer-term basis.

In the absence of clear direction, crude and equities might end up as the only guides available (or perhaps chemicals might even move in the opposite direction to equities in China as a lot of traders traditionally move their money between the two - and also property - depending on where they think the next gains can be made).

For the traders in China and those who know know how to play the domestic markets extremely well, it's also a question of maximising returns from micro-price movements.

On a weekly basis, one trader estimates that domestic polyolefin prices have fluctuated by $50-100/tonne in 2009 compared with $40-50/tonne in 2007. Last year can be discounted as an exceptional year because of the inventory building and the H2 collapse so, hence the comparison with 2007.

The Dalian exchange must also be adding to this volatility.

Bear-market rallies are better than no rallies at all, of course, and we could several more rises and sudden dips in chemicals pricing before this crisis is over.

To keep you updated on what we believe is happening in petrochemicals, here are some important recent trends:

*Futures markets in China are playing an increasingly important role in influencing pricing in polyolefins, methanol and PTA. Trading volume on the Dalian Commodity Exchange (watch out for Focus piece due out on ICIS today) for LLDPE has hugely increased this year. Traders are playing off micro movements in pricing, and it seems as if all the contradictory government signals on the Chinese economy could be affecting volatility. It would be interesting to also check the correlation between other futures exchanges, local stock markets and the DCE

*There's lots of anecdotal evidence of higher trader physical inventories - the result of easy liquidity

*China polyolefin prices have, a result, of all the above, been higher than in the West. This has attracted increased imports (note the Jan-Feb trade figures). US ethane-based PE production is very competitive because of low natural gas prices relative to naphtha. This is forecast to remain so for the next 1-2 years

*In short, the China market across several chemicals and polymers has become even more speculative than usual

*This might not be true, but watch ICIS to see if rumours have been confirmed of a softening in pricing this week. This would be ahead of the fundamentals that pointed to a correction after June

*This could be followed by a broader fall in crude, equites and global chemicals prices.

*OECD and IEA latest figures point to even higher crude stocks and there are reports of land-based storage being so full that newly commissioned supertankers are being used for storage. The financial speculators seem to be keeping crude at around $50/bbl on the belief that the global economic recovery will arrive by Q2/Q3

See the piece below.

I suspect polyolefin pricing will fall a lot further:

A Singapore-based polyolefin trader took a telephone call during a lunch meeting a few weeks ago from his counterpart on China's Dalian Commodity Exchange (DCE).

"Sell, sell, sell," advised his colleague from the other side of the restaurant table.

But he decided to hold the linear-low density polyethylene (LLDPE) contract - a wise decision at the time, as prices subsequently rose beyond $1,000/tonne (€750/tonne).

Last week, though, prices on the exchange started to fall.

In the physical market, domestic prices of most polypropylene (PP) and PE grades fell by CNY50-600/tonne ($7.30-87.80/tonne) on 14 April in northern, southern and eastern China, compared with 10 April, according to China chemical market intelligence service ICIS chemease.

"The DCE has contributed to a rise in volatility across the whole of polyolefins as traders in all the different grades are playing the market," said the trader who took the telephone call.

"China's domestic prices have fluctuated by $50-100/tonne in 2009 as against $50-40/tonne in 2007. It's not worth comparing this year with 2008 because 2008 was such a freak year."

Last year saw huge inventory building ahead of further crude oil price hikes in the first half of the year followed by the second-half price collapse.

Contracts on the exchange are bought and sold every day with the amount of physical deliveries thought to be only a tiny fraction of paper deals, the trader added.

The bulk of activity must be paper trades because of the quite staggering increase in volume versus consumption.

"Almost 24m tonnes of linear-low density polyethylene (LLDPE) was traded on the exchange in the first two weeks of April, more than forecast global demand in 2009," wrote UK-based chemicals consultant Paul Hodges on his blog, Chemicals and the Economy.

"By comparison, just 150,000 tonnes was traded in the same period last year."

The surge in the DCE is being much-discussed as is the big rise in China's polyolefin imports.

LDPE shipments to China rose by 181.47% in February this year over the same month in 2008, according to data from China Customs.

The increase in high-density PE (HDPE) was 120.94% with linear-low density (LLDPE) registering a 162.17% increase.

Polypropylene imports rose between 82.15% and 140.10%, depending on the grade.

But a direct link between the DCE and increased imports seems unlikely "as it would be too expensive to import and then trade on the exchange. Local material makes more sense," said a second polyolefins trader, who is also based in Singapore.

Higher prices in China compared with the West was behind the big jump in imports, said several market participants and observers.

Aggressive Asian petrochemical operating rate cuts late last year which were maintained in January, restocking by end-users since February and higher crude and naphtha costs have driven prices higher, they added.

Another factor behind the price surge could have been the huge boost in lending by China's state-controlled banks on very easy terms.

Traders might have used the cheap loans to buy physical cargoes of polyolefins, speculate on the DCE and quite probably on local stock markets as well.

"Speculation is in our blood, but it's the amount of gambling that's taking place at the moment that's making everyone a little jittery," said the second trader, who is ethnic Chinese.

"Everyone is scrambling to take advantage of what could be a bear-market rally in chemicals and other commodity prices and in equities."

This raises the usual question over trader versus end-user polyolefin inventory levels.

"I think a lot is in the hands of the traders who have found it very easy to borrow money," he added.

"I used to sell 80% of my material to end-users and 20% to other traders in China. These percentages have reversed."

The guessing game over inventory levels is creating even more anxiety than normal because the stakes are so high.

"Business has been good. I wish I could have produced more and exported more to China," said a source with an Americas-based polyolefin producer.

Large volumes of PE have been sold by US Gulf coast producers to China, he added.

"Shipments have risen because of ethane being cheap relative to naphtha and strong prices in China. (Most US PE production is ethane-based).

"I believe US ethane will remain a very competitive feedstock over naphtha for the next two years because of falling natural gas demand and greater availability."

The DCE had become an important factor in influencing local pricing, he added.

"I think petrochemical pricing in general was in any event heading for a downward correction after June on cheaper crude, greater naphtha availability, the end of the Asian petrochemical turnaround season and new capacity.

"We might see a sharp correction before then if the DCE dips very sharply and if traders have taken too many risks in the physical market. The trouble is nobody really knows."

Good news, bad or indifferent? It was hard to gauge a clear picture from the Q1 macroeconomic numbers for China.

While retail sales grew at 14.7% in March compared with 11.5% in February, exports fell 20% during the first quarter.

GDP (gross domestic product) growth was 6.1% for the whole quarter, less than half of the pace at which the economy was expanding in md-2007.

Prime Minister Wen Jiabao has warned against "blind optimism" over the speed of the recovery, according to the New York Times. He cited weak overseas demand, overcapacity in some industriess, job losses and low investment in the private sector as the reasons why the foundations for recovery were not solid.

Export trade won't recover until the Western consumer starts spending again close to pre-crisis levels. Without such spending it might be reasonable to assume that China will struggle to post any further years of double-digit growth.

Overcapacity in some industries includes petrochemicals, although markets have been kept tight temporarily for reasons we've already covered in this blog.

The huge government spending programme planned for refining and petrochemicals could worsen the overhang.

China's petrochemical self-sufficiency ambitions could force all but the Middle East and a few other low cost producers out of being able to export some products to China.

I noticed in this Economist article that industrial production was sharply up in March by 8.3% and I read elsewhere that factory gate prices slipped by 6% - again in March - from 4.5% the previous month.

I've picked up anecdotal reports - again mentioned earlier on this blog - that factories are running hard in the textiles and garments sector to keep people in jobs, aided up soft banks. This conjures up an image of rows of warehouses stacked high with shirts that nobody wants to buy.

Is there a danger that in H2 China will export deflation to relieve some of its finished-goods inventory pressures? If so, what would this mean for the business of chemicals?

A sure way of telling might be a survey of purchasing managers in the West, asking whether they have been offered unusually large quantities of very cheap Chinese goods.

Jun Ma, Deutsche Bank's Chief Economist for Greater China issued a note this morning about the possibility of restrictions on the growth in loans because of poor lending practices.

This followed a warning against credit risks by Liu Mingkang, chairman of the China Banking Regulatory Commission, which this Wall Street Journal article has also picked up.

There are widespread anecdotal reports of commodity chemicals prices being over-inflated because easy lending has made it easier to speculate.

This speculation is across chemicals and polymers, futures exchanges for chemicals and polymers such as the Dalian Commodity Exchange and prroperty and stock markets. The same trader can often be dabbling in all the above.

One of my good contacts and friends had a "Joe Kennedy" moment last week (this refers to the famous story where the father of John F Kennedy was advised to invest in stocks by a shoe shine boy. He promptly went out and sold his shares just in time to avoid the Wall Street Crash).

The trader's moment came when he was asked by a Bangladeshi customer for ten full container loads of polyethylene (PE).

"I knew something was very wrong because there is no way demand in Bangladesh would justify this size of shipment. It was obvious this was for speculation," he said.

This followed a call from a Chinese chemicals trader who had never traded in polyolefins before asking for a cargo on behalf of a friend of a friend. "It was obvious he knew nothing about melt indices, the product or its applications. I could hear the sound of the herd stampeding towards the edge of the cliff."

So the trader liquidated all his positions late last week ahead of what he thought would be sharp price falls in polyolefins in China. It will be interesting to see if he was right.

In the longer term, as the Economist article also points out, better infrastructure - a major feature of the stimulus package - will help boost domestic growth and reduce reliance on exports.

If the government also manages to introduce a good nationwide health and social security system, domestic growth could really accelerate. I would bet that China has a much better chance of success than the US.

But China is China and if there is a way of making money out of a crisis, the famously savvy Chinese traders will find a way.

The danger is that this sends misleading signals about the true state of demand to outsiders - and at the moment, we are all desperate for any bit of good news. Has this made us a little more gullible than normal?

Speculative bubbles in property and construction - brought to an end by credit restrictions- was the start of the country's economic decline, The Economist adds.

Government policy was wrong.

If factories at the end of some chemical product chains are being kept running at high operating rates for social rather than demand reasons, this could turn out to be another flawed policy.

Referring to the famous story about how Joseph Kennedy sold his shares on the eve of the Wall Street Crash after being given investment tips by a shoe-shine boy, my answer to the above is a definitive YES.

Over the course of rest of this week I am going to detail why I think reports of China's economic recovery have been greatly exaggerated.

Petrochemical producers talk about a significant and perhaps sustainable demand recovery, but I am even more firmly of the view now - having read some more worrying economic analysis - that we are in the middle of a mini commodity-price bubble (this applies to crude as well as chemicals) that's not supported by the fundamentals.

And as mentioned in this article, (apologies for the laziness of using the same intro twice!) the bubble has yet to significantly deflate.

Chinese domestic polypropylene (PP) and polyethylene (PE) prices slipped slightly last week by around CNY400-500/tonne, but import prices remained unchanged.

The sentiment, though, seems to have become more bearish on the feeling that prices have gone up by too much too quickly.

Trading volume in linear-low density PE (LLDPE) on the Dalian Commodity Exchange continues to post staggering increases.

If you take the number of contracts traded to date in April and multiply this by the size of each contract (5 tonnes), 48.65m tonnes have been traded. This about twice the annual global demand for the polyolefin.

This compares with just 166,330 tonnes during the same period last year, representing at 29,157% increase.

What's interesting to note is that the year-to-date increase over the same four-and-a-bit months in 2008 is far less dramatic: to 149.85m tonnes from 132.5m tonnes - a modest 13.06% rise.

Have the shoe-shine boys started punting on the exchange in a commodity that they don't have a clue about?

Could the chemicals industry be in danger of wanting to believe something so much that ignores overwhelming evidence to the contrary?

The widespread perception is that China's economy has reached a turning point.

"The worst of the crisis is over and the world is entering the time when things will gradually get better," wrote former US presidential adviser John Rutledge in an article on the Chinese news service, Xinhua.

According to The Economist, it wasn't the collapse in exports that triggered slower growth in China.

It traces the origins of the downturn to tightening of credit in 2007 that led to a collapse in property prices in China's first-tier cities and a decline in construction.

"If the collapse in domestic demand led China's economy down, it can also help lead it up again. Not only is China's fiscal stimulus one of the biggest in the world this year, but the government's ability to 'ask' state-owned banks to spend and state banks to lend more means that the government's measures are being implemented more rapidly than elsewhere," writes the magazine.

The huge spending on infrastructure will hugely benefit rural communities as two-fifths of villages lack a paved road to the nearest market, it adds.

A large increase bank lending also appears to be behind a 36% rise in housing sales by value in the year to March after sharp falls in 2008.

If construction picks up this should help reduce unemployment as half the job losses among migrant workers have been in the building industry, the magazine continues.

But The Economist concedes that a misallocation of capital is a concern.

However, the article continues: "China is one of the few countries in the world where bank credit has fallen relative to GDP over the past five years. Banks have an average loan-to-deposit ratio of only 67%, low by international standards, and less than 5% of banks' loans are non-performing, down from 40% in 1998."

So in other words because the Chinese banks are awash with cash a major Western-style financial crisis seems unlikely, no matter how much money is wasted.

But if money is being misallocated, the boost to growth might be less than some people are forecasting.

There are strong rumours that easy bank loans have fuelled speculation.

"When we are selling to a trader in China they have no interest in our letters of credit because they can borrow so cheaply and so easily from their local banks. They are even prepared to pay 20% up front by telegraphic transfer," said a Singapore-based polyolefins trader.

"I used to sell 80% to end-users and 20% to other traders in China, but now those percentages have been reversed.

"I think a lot of traders in China have taken risky long positions because lending terms were so easy."

Money has even been borrowed and then made or lost on domestic stock markets, some sources claim.

The same might apply to the Dalian Commodity Exchange, which has seen a huge increase in trading in linear-low density polyethylene (LLDPE) over the last few weeks.

Large of inventories of steel, aluminium and concrete are being built as a result of speculation and perhaps an anticipation that demand will get better in H2. The same might apply to chemicals and polymers.

But Michael Pettis, a professor at Peking University's Guanghau School of Management, makes some worrying observations about the economy in his blog.

It is worth reading the lengthy posts for 20 April and 13 April.

In summary, he talks about:

*Private companies - the main engine of economic growth - struggling to get financing as the state-owned enterprises receive a flood of loans

*A poor return on money spent versus jobs creation - for example, CNY1trillion which is being spent in Henan province to create 650,000 jobs. He has calculated that if this same sum had been spent on giving workers salaries of CNY3,000 a month (more than twice the average salary of migrant workers) this would have been enough to pay the wages of 650,000 people for 43 years

*A boost in industrial production, "leaving the unresolved question of who is going to absorb the excess capacity if the US is no longer willing to play the role"

*Signs that China is trying to export its way out of oversupply. The trade surplus was $62.6bbn in Q1 this year, up from $41.7bn for the same period in 2008. "Although lower than the astonishing heights of January and late last year, the trade surplus is still much higher than this time last year. That means China's export of overcapacity is increasing," he writes

*A much larger vulnerability of GDP (gross domestic product) to exports than some economists have calculated. He quotes a Wall Street Journal article, quoting a working paper prepared for the International Monetary Fund. The paper estimates that for every 10% fall in exports, GDP will decline by 2.5%. Exports fell by 20% in the first quarter

*Government subsidies and tax distorting demand - for example, state-owned enterprises bringing forward vehicle purchases which was of the major reasons why auto sales rose by 10% in March. JD Power, the car consultancy, is forecasting flat Chinese passenger car sales in 2009

It would be nice to start the weekend with a little cheer, but I'm afraid no amount of gormless optimism would work.

DuPont, as you can see from this excellent piece from my colleague Nigel Davis at ICIS, has revised its forecast for 2009 global growth down to minus 2.5% from minus 0.6%.

Every chemicals end-use segment you can think off from automobiles to construction to electronics looks a lot weaker than in H1 2008.

We need a new way of thinking to get through this, but as I head for a weekend with my family where the plan is to avoid reading any financial news, I am short of any ideas - other than maybe working for an NGO and accepting a much-reduced standard of material liviing.

Making money in this climate remains extremely hard - although from a business journalist's perspective, it is of course a fascinating time.

The first stage of the 105th Canton Trade Fair - which involves electronic and electrical appliances, hardware and tools, machinery, vehicles and spare parts, building materials, lighting equipment and chemical products - concluded this week. Sales totalled $13.03bn - a 20.8% fall on the same stage last year.

I also read this other report about a surge in job creation in China's cities in Q1 over the the fourth quarter last year. What are all these extra workers doing?

Are they building dangerously high inventories of semi-finished and finished goods?

China's economy is showing signs of recovery, but not enough to replace the 20% fall in exports during the first quarter.

My current favourite blogger is Michael Pettis, professor at Peking University's Guanghua School of Management, who, in his latest post, makes a very worrying point below.

As an aside, and without wanting to take the 1930s analogy too far, this debate in China is a little like the split in the 1930s between the internationalists in the US who favored hard money (incorrectly, I think) and a rapid liquidation of overcapacity (painful but probably correct), and who vehemently opposed measures, including tariffs and competitive devaluations, to boost employment via boosting the export of overcapacity, versus the large and powerful constituencies, dominated by local congressmen, miners, farmers and many industrialists, who stressed immediate moves to weaken the currency, boost production, and resolve US unemployment even at the expense of the global system. In part because the 1929 stock market collapse thoroughly discredited bankers and economists, and in part because politicians are always more likely to be influenced by large domestic constituencies than by internationalists, the latter group pretty resoundingly won the debate, at least in the early part of the crisis, and clearly not to the US's obvious benefit.

Economic stimululs packages the world over seem to be attempting to turn the clock back to 2007 - thus adding to the imbalances that caused the crisis in the first place.

In the case of China, short-term political expediency might be causing more damage to the global economy as the country tries overproduce its way to higher growth.

Overproduction in China might be the reason why polyolefin prices continue to defy reason.

Despite a fall in naphtha prices on what we earlier predicted on this blog - a big increase in naphtha supply in Asia - polyolefin prices continued rising last week.

Naphtha had fallen by $13/tonne to $437.25-438.25/tonne CFR Japan while polyethylene prices rose by $20-70/tonne in Northeast and Southeast Asia and polypropylene by $30-60/tonne.

......all the right reasons than to be wrong altogether?

Sounds a dumb question, perhaps - unless you take particular pride in being one of those know-it-alls.

The point I am trying to make (and assuming that chemicals pricing doesn't collapse beforehand on a broader retreat in crude and equites on maybe panic over swine flu or the realisation that a global economic recovery is a long way off) is that I have thought for a while that the fundamentals point to a major price correction from June-July onwards because of:

*New supply from the Middle East. Surely, yes surely, there will be more capacity hitting the market in H2 as PetroRabigh ramps up output - even if YanSab, Sharq and perhaps even the new cracker in Qatar - are effectively pushed into next year

*A lot of new supply in China. My colleagues at CBI Research & Consulting are working on an update of the subtantial amount of additional capacity due on stream in H2, including Fujian Petrochemical & Refining (the latest world on the start-up of which is July)

*The end of the May-June petrochemical turnaround season in Asia

*An increase in naphtha supply (as much as 20-30% in Asia, according to Purvin & Gertz) as a result of higher production from two new condensate splittlers in the Middle East and greater naphtha exports from India

*A I said, my belief that everyone will have to wake up to the fact that the global economy, including China, will not enter recovery in 2009 or perhaps even in 2010. I remain worried about the quality of China's growth (is it too production rather consumption-driven?), how much stimulus-package money has been wasted on speculation, including in building chemicals inventory, and the possiblity that China - directly or indirectly - might start exporting deflation

But today I spoke to some goods contacts and friends at a leading petrochemicals trading company who gave the following additional reasons for their long-held view that prices would tank in July:

*US and European producers upping operating rates in response to strong arbitrage opportunities. The Europeans have already raised rates, apparently, and the US more recently. In the case of propylene, though, stronger demand for refinery-based C3s from several derivative producers might, perhaps, make further US PP shipments unworkable

*Strong interest in shipping petrochemicals from the US and Europe to Asia for arrival after May (all May business was concluded around 20 April). Cargoes could be at sea and uncommitted just as the shift in fundamentals listed earlier starts to take effect. Big quantities have already been shipped from the West to East during Q1, including very large amounts of BTX and polyolefins. Around 200,000 tonnes of US and European benzene is heading for Asia for March and April arrival, according to DeWitt & Co. China imported 114,000 tonnes of benzene in March alone, which compares with just 328,000 tonnes for the whole of 2008 - an average of 2,733 tonnes per month. The surge in toluene shipments from the West to China is equally dramatic: China received 66,000 tonnes in January, 77,000 tonnes in February and 94,000 tonnes in March compared with a 2008 total of 273,000 tonnes.

Inventory pressures in the West have been relieved and some of the big losses suffered in Q4 have been recouped (and some of the traders seem to have done very well indeed).

So batten down the hatches once again.

As the potential swine flu pandemi threatens more lives - and even more damage to the global economy - it's time to watch American Idol re-runs.

It would be great if we could all collectively retire to some paradise island where Manchester Utd and Chelsea have never won a Premiership trophy, or any kind of trophy for that matter, for the last 20 years - and where the anxiety of making and losing money is replaced by a new Affluenza--free style way of thinking.

In the mean time, the free versions of Adam Lambert's stunning version of the Tears For Fears 1980s song, Mad World, have been removed from YouTube. But it is so worth paying for an iTunes download.

Meanwhile, here are the lyrics. Makes you think, eh?

All around me are familiar faces
Worn out places, worn out faces
Bright and early for their daily races
Going nowhere, going nowhere
And their tears are filling up their glasses
No expression, no expression
Hide my head I want to drown my sorrow
No tomorrow, no tomorrow
And I find it kind of funny
I find it kind of sad
The dreams in which I'm dying
Are the best I've ever had
I find it hard to tell you
'Cos I find it hard to take
When people run in circles
It's a very, very
Mad World
Children waiting for the day they feel good
Happy Birthday, Happy Birthday
Made to feel the way that every child should
Sit and listen, sit and listen
Went to school and I was very nervous
No one knew me, no one knew me
Hello teacher tell me what's my lesson
Look right through me, look right through me