Asian Chemical Connections

The views of two Singapore-based chemicals traders explain some of the fundamental shifts in production, logistics and demand since the economic crisis began.

"I have done reasonable business this year and made quite good returns, but volumes are way down," said the first of these two traders, who deals in toluene and mixed xylenes (MX).

"Cracker-based aromatics producers are being exceptionally cautious and are very unwilling to risk building inventory.

"Whereas I used to get, say, 5,000 tonnes a month from a particular company it's a maximum of 2,000-3,000 tonnes and sometimes none at all."

Reformer-based output in China has been heavily influenced by liberalisation of government restictions of fuel prices, he added.

This has led to sudden and sharp increases in output that markets have, at times, found hard to absorb.

"Aromatics pricing has recovered, of course, It's been either firm or rising for most of the last eight months, " he continued.

"But the end-user demand hasn't really responded in the same way. All we've really seen is some re-stocking, the cost-push from higher crude and a lot of speculation by Chinese traders.

"Weaker volumes are making it really hard for the shippers.

"There's a lack of small vessels of below 5,000 and up to 10,000 tonne in capacity. A lot of the ones out there are close to being scrapped because they are old.

"A customer in China, say, might only want less than 5,000 tonne but it's not economic to ship such a small cargo from Southeast Asia to China.

"So even if I can find a supplier it can be difficult to find a ship, despite a big surplus of tonnage.

"A lot of new vessels are being delivered which will keep freight rates down for some time. These are either medium-sized ships at 20,000 tonnes or large vessels between 60,000-80,000 tonnes."

He was worried about recent price corrections and believed that "a lot of unsold inventory in China has yet to work its way into the market."

But the trader was confident that crude would remain at $65-70 a barrel for the rest of the year.

"I don't see a problem with storage," he said, disagreeing with the forecast of $45 a barrel.

"The crude price will obviously set a floor for toluene and MX.

"Even if everything goes into free-fall the crude traders are likely to come in and buy-up surplus aromatics.

"This happened last year when they set a floor for toluene and MX at about $400/tonne.

"I think the floor will be higher this time because crude will remain relatively stable."

The second trader - this time in polyolefins - agreed that oil would stay at $65-70 a barrel for the rest of this year.

"But we are facing a lot of indigestion. China has imported a huge amount of polyethylene (PE) and polypropylene (PP).

"Since September the market has been very quiet. This always happens after a strong buying spree.

"The Dalian Commodity Exchange futures contract in linear-low density PE (LLDPE) has collapsed.

"This is a sign of weak overall sentiment. Traders have also suffered heavy losses and so they have less cash to spend in the physical markets."

Volume and pricing on the exchange have fallen very steeply as this chart from Paul Hodges shows:

September volume was down by 63% from April.

"What we have to wait for is end-November when pricing (in the physical markets) should pick up as manufacturing increases ahead of the next Chinese New Year (February 2010)," the second trader added. 

"If it doesn't this is a sign of some big supply imbalances."

But even if there was a brief rally at the end of November, he predicted that afterwards there would be a prolonged trough on new capacities and a fall in Chinese bank lending.

....what do these environmental issues mean for Thailand as an investment destination?

The Map Ta Phut refinery-petrochemicals complex

Source of picture: Pattaya News

By Malini Hariharan (Malini is now joint blogger for Asian Chemical Connections)

Here's yet another unexpected project delay that could prop up markets in the fourth quarter.

The Thai Central Administrative Court decided to halt construction of 76 projects at Map Ta Phut on environmental grounds last week.

The long list of projects includes new crackers and derivative projects by PTT and Siam Cement/Dow Chemical.

PTT was due to have started commissioning a new 1m tonne/year cracker complex in the fourth quarter, while Siam Cement and Dow Chemical's 900,000 tonne/year cracker and downstream plants were scheduled to commence operations next year.

Both of the Thai companies have issued statements that the projects are likely to be delayed, and PTT has even decided to delay a maintenance shutdown at one of its crackers from October to January 2010.

Thailand is already a net exporter of PE and PP and the new projects would have increased the country's export burden.

One local newspaper report said that projects could be delayed by a year, although the two companies have not yet declared revised start-up dates for their projects.

PTT issued a statement that it was working closely with government authorities to resolve the crisis and that it had submitted a petition to a higher court. The prime minister has already asked the industry ministry to appeal against the ruling.

The Bangkok Post reported that the appeal would be made in two parts.

The first section would ask for court permission to allow industrial projects that have no impact on the environment to continue, while the second would seek a temporary halt to projects that had problems with environmental impact assessment (EIA) studies. 

The story did not identify projects that had EIA problems.

There is no doubt that the government will have to act fast. But it faces a tough task of balancing public opinion and expectations while protecting the interests of local and foreign investors.

Public opinion - seen in some of the comments that the Bangkok Post report has drawn - will be difficult to ignore.

It might be even harder to address growing concerns about Map Ta Phut as an investment destination in Southeast Asia.

This latest crisis in Thailand is also a fresh reminder of the growing power of the people in many parts of Asia to influence chemical-project activity.

Protests against construction of mega projects on environmental grounds are getting louder and louder.

.....and a January collapse

PERHAPS commodity and equity markets will continue to keep denying the weak fundamentals until bonus cheques for fund managers etc have been signed and are in the bank.

Fund managers, because of the way they are benchmarked, will be desperate to stick close to the performance of stock market indices, said John Authers in this article from the Financial Times.

"It is a disincentive (the benchmarking) to making a big move either into our out of the market even if a fund manager has a strong view that we are heading for a rally or a fall," he wrote.

"This behaviour may yet allow the current stock rally to persist in spite of the disappointing economic data."

The same, I guess, could apply to crude - blowing the case for $45 a barrel by the end of the year out of the water.

Barclays Capital is, in fact, predicting a rise in oil to $70-80 a barrel over the next month with Goldman Sachs forecasting $85 a barrel by end-2009.

So once the bonus cheques have cleared, a combination of sobering economic facts and investors getting out while they are ahead could cause a steep dip in January.

Might we then see another temporary bottom to crude, equities etc and further buying opportunities?

This will depend on government cash remaining cheap and plentiful and an improvement in the real economic outlook.

My bet is on a prolonged trough because we are back to 2006 demand levels in chemicals and presumably lots of other stuff  - before the credit-fuelled false-bottomed boom.

Britain's last generational shift: The 1980s Miners Strike:

Source of picture: www.wsws.org

My late parents hated even the concept of debt - let alone the insanely irresponsible error of actually borrowing money.

This is not surprising as my father could remember, when he was a boy, queuing for free food handouts during the Great Depression.

My mother was slightly less poor when she was a child (but still poor by any normal Western modern-day standards), but believed in thrift just as fervently.

Their attitudes were shaped both by the Great Depression and the deprivations of Great Britain during and immediately after the Second World War.

So when I ran up an overdraft of few hundred pounds Sterling when I was student they were less-than-impressed - especially as the bank manager phoned to ask for my cheque book and cheque-guarantee card back!

Their approach to debt, aside from an expensive passion for beer when I was a student, is ingrained.

Despite my fascination with commodity and financial markets, I would rather observe from the sidelines.

The question now - as the West still struggles to cope with high levels of personal debt left over from the current crisis - is whether we have undergone another generational shift.

Quite possibly, thinks Paul Hodges of International eChem.

A whole generation has grown up with easy and cheap money being the norm and markets and assets only heading, on the whole, in one direction - that's up, of course.

In Britain, the last big shift in attitudes to debt and spending began back in the 1980s with the Thatcher revolution.

Millions of council tenants started buying homes for the first time and dabbling in shares, as the very nature of British society moved away from collectivism towards a greater "me" culture.

Financial deregulation also took place on both sides of the Atlantic and bubbles were kept inflated by central banks.

The rest, as we know, is very painful recent history.

How will the children of parents now facing foreclosures, personal bankruptcies and long-term unemployment respond over the coming decades? Will they start keeping their money beneath the proverbial mattress?

Can we also expect a permanent shift to more prudent forms of banking?

What will this mean for growth in chemicals demand?

"THIS IS RIDICULOUS. I WAS SITTING AROUND UNSOLD FOR MONTHS AND THEN WAS FORCED TO JOIN A SANTA FLEET-HIRE SCHEME. HOW HUMILIATING"

Source of picture: www.diytrade.com

BEWARE the prophets of recovery in exports of Chinese manufactured goods during the current Christmas buying season.

Labour markets in the key export-processing provinces, such as Guangdong, are reported to be tight as production of everything from I-Pods to Barbie Dolls is ramped up.

It would be easy to misinterpret this as a recovery in Western demand, but how can this be when the real economic news remains bleak?

On a month-on-month basis there is bound to be an improvement because, of course, this is the Christmas buying season for the big retailers.

And any comparison with sales to the retailers in October-November is bound to look pretty stellar compared with the exceptionally bad same two months in 2008.

But will the retailers overstock only to find Western shoppers less-than-eager to empty the shelves? (Is this is a bigger-than-usual incentive to wait for the traditional January sales?).

And/or will too gung-ho manufactures in China be left with high inventories?

There have been plenty of extra incentives to import raw materials, including polymers and chemicals, to make finished goods in 2009 - from easy credit to increases in export-tax rebates.

This has contributed to the very high import volumes we've seen across a broad range of chemicals and polymers for the last 7-8 months.

China is in danger of only growing one export, therefore: Deflation.

Offsetting the risk of being over-optimistic?

Source of picture: thetradingpit.net

MAYBE there should futures contracts in realism versus recklessness. That way any senior company executive who wants to take a punt on next year being better than 2009 can offset the risk by going "realistic" on the futures markets - and, of course, vice versa.

How on earth you would design futures contracts around such abstract and subjective concepts as realism and recklessness is a challenge I feel only able to deal with this weekend - over a few beers.

This post is not all nonsense. Stories posted by my colleagues from ICIS news  indicated chemical industry leaders were going long on realism in physical markets during this week's European Petrochemical Industry (EPCA) conference in Berlin.

Margins will not be back to 2007-08 levels until 2011, said Tom Crotty, INEOS Olefins and Polymers CEO.

Europe has yet to feel the full impact of new Middle East capacity, much of which has so far been sucked into China, he added.

The capacity down cycle will hit very soon as China's broad-ranged overstocking leads to more of these Middle East volumes heading to Europe.

"Anyone who says that the industry is going to be in great shape in the middle of next year is fooling themselves," said Shell Chemicals vice president Graham van't Hoff.

"We're still waiting for the major impact of excess capacity from the Middle East that we have to be braced for and ready to manage."

Demand wouldn't return to earlier levels for 2-5 years, he added. 

Now that's what I call wide-ranging scenario planning.

ExxonMobil, as they often do, talked about feedstock innovation and cost savings; hardly surprising as they are rather good at both.

And Albert Heuser, president of petrochemicals for BASF, expects overcapacity in the market in 2010-11.

If only this realism had been around in sufficient quantities during the boom years.

Will the experience and knowledge gained from this recession be retained to prevent another down cycle of recklessness?

At an investors conference call yesterday, Indira Nooyi, the chief executive of PepsiCo, said she expects the 'age of thrift' in consumer spending to continue into next year.

As consumers in the developed world are placing value at the top of their agendas, the company's efforts in the future will be on developing lower priced products. Pepsi has, in the past, been quick to spot and adapt consumer trends such as the introducing healthy snack food. And if it now believes that consumers will not be interested in pricey products, others too will follow.

So what does this mean for the chemical industry? Will companies such as Pepsi move to cheaper packaging formats? Will these companies be less interested in packaging innovations?

Picture source: PepsiCo

This will have implications for innovation in the chemicals industry - especially development of value added grades/products? Many of the leaders in the industry have been using innovation as a platform to differentiate themselves. Is it time to reconsider this strategy?

Or will consumer product companies simply use this trend to drive an even harder bargain when purchasing raw materials?

Flying the flag for Q3...

Source of picture: etftrends.com

Yes, Q3 earnings season is almost upon us with the usual headline-grabbing improvements in carefully selected reported numbers.

What this season might tell us about the overall direction of everything is, to start the week on yet another pessimistic note, hardly uplifting.

John Authers is once again worth quoting from his Long View column in this weekend's Financial Times.

The S&P 500 enjoyed bounces of 2-3% in 2000-2008 immediately after the first - to third quarter results were announced, according to a study by Andrew Lapthorne of Societe Generale in London.

But the index, when you take these increases out of the calculations, fell on an average annualised basis of 1.2% - suggesting some economy with the truth in company reporting.

This year's Q3 season might help to support equity markets until the end of the year if, again, the clever bean counters have been at work - and companies follow their usual practice of under-promising and therefore appearing to over-deliver.

Next year is the problem.

Price/earnings ratios on an operating profit basis are way ahead of where they were in any previous economic recovery since the Second World War, said David Rosenberg of Gluskin Sheff in Toronto.

In other words, companies will have to deliver spectacular profit and/or revenue growth next year to justify current valuations.

The mood in bond markets - where yields indicate expectation of a slow and non-inflationary recovery - is very different.

As we've said before on this blog, commodity and equity markets have priced in a recovery which might well not happen in 2010 or even 2011.

Companies across many industries, including chemicals, have made improvements mainly on re-stocking and cost-cutting this year.

It's hard to see how they can make similar gains in 2010 - particularly in commodity chemicals where we are only just beginning to reach the bottom of a prolonged supply-driven down cycle.

And when equities go in the New Year so could crude, potentially creating another mini de-stocking crisis. This will be nowhere the near the scale of Q4 2008, though, due to much-tighter inventory management policies.

Company performances might get worse never mind better, making current valuations seem far to premature.

The Chinese government appears to have an important objective to achieve while promoting commodity futures trading in the country?

A report in today's Wall Street Journal says that the government is positioning its futures markets in setting world prices for metal, energy and farm commodities. Jiang Yang, chief futures industry policy maker and assistant chairman of the China Securities Regulatory Commission is quoted as saying that the government has a long-term goal of increasing China's influence in pricing. Yang also says that futures may assure Chinese commodity importers of 'fairer deals'.

Pic source: Xinhua

The big implications are for the oil market as China imports huge volumes every year. The Shanghai Futures Exchange is said to have plans of introducing its own contract for crude oil next year. This may not be an immediate threat to the Nymex contract but the development needs to be watched closely especially if it has the support of the Chinese government.

"Beijing believes hosting big futures markets will enhance the country's economic security by essentially advertising what the world's biggest customer for some commodities considers a fair price. For the rest of the world, the exchanges could mean less guesswork about China's buying habits, possibly reducing volatility in the global market."

The strength of Chinese buying in the physical market has for some time now guided global petrochemical prices. But with the lldPE and PVC contracts turning out to be spectacular hit this year on the Dalian Commodity Exchange will these contracts soon become a reference for global pricing?

"Take it from me, peripheral vision isn't all it's cracked up to be, especially if you want to get a decent annual bonus...."

Source of picture: www.whipnspurs.co.nz

Here's a rant for Tuesday - with thanks to Paul Hodges for informing some of the thinking (I'd like to lay credit to certain parts of this...)

Purchasing managers are professionally required to wear blinkers. All they care about is making sure that they are ahead of the game because of the way their performances are measured.

So up until Q4 2008 they ignored headlines such as "US auto demand slumps on surging gasoline costs and slowing economy" and "western house prices plummet on sub-prime mortgage crisis."

Oil prices seemed to be on the forever-up and liquidity was abundant. The result was purchasing in big volumes ahead of anticipated further price rises until the great unravelling post-Lehman Brothers.

Senior strategists - whose job it was to worry about the big picture - were also wearing blinkers, deluded in the belief that 2006-07 demand levels would go on forever.

Cracker operating rates were going to remain comfortably above 80% during the coming down cycle, was the consensus view in the first half of last year.

Now the industry is going to have to live with global averages of between 60-70% over the next few years.

The chemicals industry has lost three years of demand growth as global production is now back to early 2006 levels. It is unlikely to budge much in a favourable direction until at least 2011.

The reason is that real western growth, minus all the froth of commodity and equity markets, is going to remain weak on unemployment and high personal debt problems.

Another concern is unwinding government subsidies.

Too many people might have been misled by Chinese imports over the last 7-8 months.

The strength of these imports wasn't sustainable and was due to temporary factors that have now come to an end.

Banking on China as the leader of a global recovery is utter nonsense when you look at the country's low per capita chemicals consumption and its heavy export dependency.

Any Northeast or Southeast Asian producer high on the cost curve is likely to find it harder to penetrate western markets in 2010.

How can these producers - when they import crude oil - export, say, PE to Europe at fair market prices in the face of much-stronger Middle East competition?

Trade lawyers should do very well from anti-dumping cases in 2010.

This is a protracted supply-driven U-shaped downturn, and we are only just getting towards the bottom of the U.

Lots of Middle East capacity has been delayed - and the next big wave of Chinese start-ups is only just beginning.

Studying the tone of Q3 results statements will be a good indication to what extent senior execs have taken on board this new reality (actually it's not that new - we've been waffling on about this on this blog for months).

I have been digging a little deeper into the Map Ta Phut issue and it looks like expectations of major delays to projects at the site were a little premature.

Construction has not stopped despite a ruling by Thailand's Central Administrative Court to stop work on 76 projects at the site. The ruling was directed at the government which has so far not asked companies to halt work as all the projects have received environmental clearance. The government has now appealed to the Supreme Court and Thai companies are also planning to approach the court.

Although work is ongoing companies may not receive permission to commission their projects if the issue is not resolved quickly. The first of the major projects due at Map Ta Phut is PTT Chem's 1m tonnes/year cracker. The company is still hoping to commission this at the end of the year though it is unlikely to run at full capacity until a new gas processing facility is brought onstream in first quarter of 2010. PTT Chem's plan is carry out a maintenance shutdown at one of its smaller crackers to divert feedstock to the new cracker during the commissioning period.

Pic source: Wikimedia Commons

Nobody is very clear on how quickly the government will be able to sort out the Map Ta Phut problem. I was told by one Thai analyst that anyone giving dates is surely bluffing. But he believed that it is likely to take months rather than years to work out a compromise.

The government is certainly under a great deal of pressure - investment, employment and GDP will be hit if projects at Map Ta Phut get delayed but at the same time it cannot afford to ignore the demands of the local people.

And what the people want is full implementation of Section 67 of Thailand's 2007 constitution. This guarantees Thai people the right to participate with the State in preserving the environment and stop any project or activity which may damage the environment unless it has been evaluated and approved by an independent body made up of representatives from private environmental and health organisations.

But the government has yet to form an independent body or pass a law that companies can follow while seeking environmental clearance for their projects.

It will certainly do so now which means that companies will need to carry out a Health Impact Assessment (HIA) study besides the Environmental Impact Assessment study (HIA). And this, in the words of the analyst, will not only take more time but will also be a tougher hurdle to clear.

Source of picture: www.textually.org

The political sensitivity surrounding Iran is so great that US-based companies are not even allowed to attend presentations by Iranian officials at conferences, a source said.

"I witnessed a recent walk-out during a presentation by the National Iranian Oil & Distribution Company (NIODC)," he said.

But a European office of a US company is able to do business with the Middle Eastern country, provided an entire technology and project is developed by that office.

"If as much as one email passes Europe and the US headquarters, that's enough for an investment to become technically in breach of sanctions," the source continued.

These nightmarishly difficult restrictions come as Iran attempts to build no less than seven grassroots refineries in a attempt to rectify deficits in fuel products - one each at Shahriar, Anahita, Caspian, Khuzestan and Pars and two at Hormuz.

Numerous other expansions at existing refineries are being planned with the likely investment costs running into many billions of Euros.

Scepticism is easy following big delays in previous natural grass processing, refining and petrochemical investments due to sanctions that limit financing and technology and skills transfer.

Doubts have also been raised over the level of investment in maintaining output from the oil fields that would supply this new refinery capacity.

In the case of the two crackers finally brought on-stream at Assaluyeh, the slow pace of growth in gas-processing means that they suffer operating rate cuts and even shutdowns during the winter.  

All the gas being processed during the winter months has to be diverted to domestic use because of a big shortfall in supply.

Honest and hardworking company officials on both sides of the political divide deserve solutions.

THE MOOD seems to have become a little more upbeat in the Gulf Co-operation Council (GCC) region of the Middle East thanks to the economic recovery.

"The flow of foreign funds into the GCC came to a complete standstill in Q4 and the first quarter of this year, but in Q2-Q3 it reached all-time highs," said a petrochemicals industry source.

"Whilst the mood is still a little depressed, there are signs of hope with the expectation that growth by 2011 will return to normal levels."

The Saudis had budgeted for an average crude price of $40 a barrel for 2009, but $70 a barrel was more likely, creating more leeway for government spending, he added.

"Stimulus measures haven't kicked in yet across the GCC. This should soon be the case in Saudi which will result in lots of money spent on infrastructure and therefore more petrochemicals demand."

This rosy view is reflected in a recent pick-up in project activity in gas processing, refining and petrochemicals.

KBR, for example, won a contract to supply front-end engineering and design work (FEED) and project management services for a natural gas liquids (NGL) plant in Shaybah, Saudi Arabia.

Jacobs Engineering Group has been awarded the FEED contract for Borouge 3 in Abu Dhabi - the polyethylene (PE) and polypropylene (PP) expansion due on-stream at end-2013. This would raise the Borouge joint venture's polyolefin capacity to 4.5m tonne/year.

The monster Ras TaNura project in Saudi Arabia also seems to be moving forward.

It will cost anywhere between $20-27bn and will produce either 8m tonne/year or 11m tonne/year depending on which reports you believe. Start-up is either 2014 or 2015.

Two consultants working on the project for different companies have told the blog that it is progressing.

Dow Chemical is still very much involved after suggestions earlier this year that the US major's financial difficulties might force Saudi Aramco to seek a new partner, they added.

A sign that sentiment has improved was evident from reports about the financing of the Aramco-Total refinery project at Al-Jubail.

Bids from potential lenders left the $12.8bn project 30 times over-subscribed, Reuters said last week.

Technip has won engineering and procurement (EPC) contracts to build a hydrocracker and a fluid catalytic cracker (FCC) at what will be a 400,000 barrels a day full-conversion refinery - due to start commercial production in March 2013.

The project also includes 700,000 tonne/year of paraxylene (PX).

But gas supply remains tight for petrochemicals as this excellent article from my colleague Malini Hariharan explains.

Only one cracker might go ahead in Qatar instead of the scheduled three projects - involving Qatar Petroleum and Honam Petrochemical, ExxonMobil and Shell.

The economic rebound is constraining electricity supply throughout the GCC, resulting in priority being put on supplying gas to the power sector during the summer months.

New associated gas is dwindling with undeveloped non-associated fields containing a high sulphur content of 25-30%.

Processing this extremely sour gas would become economic only at a gas price of $5-7/mBTU, according to Justin Dargin of the Dubai Initiative at Harvard University.

Are the days of cheap gas for petrochemicals in the GCC over for good?

How economic will naphtha-based production be compared with building a new naphtha cracker in Asia?

One feedstock option for the Middle East and Asia could be to make use of liquefied petroleum gas (LPG), which according to a Singapore-based business development executive with a publishing company, will be "as cheap as chips" over the next few years.

This will be the result of a big increase in liquefied natural gas (LNG) output, where LPG is a by or co-product, and refinery expansions.

Indeed, the petrochemical industry source we quoted at the beginning of this post added: "There's going to be lots of propane available in the GCC."

Aramco was also exploring under the Red Sea for the first time for oil and gas after previously concentrating exploration on Saudi's Eastern province, creating the potential for more petrochemical feedstock, he added.

At the moment, though, you can just about count the number of petrochemical on the fingers of one hand, beyond the ones already financed. This is provided you count the 35 or so plants planned for for Ras Tanura as one!

There's another problem that's as long-standing as gas feedstock, which might also be getting worse.

"I know of a refinery in the GCC that's planning a turnaround in three years. It's already worried about a shortage of engineers to execute the turnaround. India has become a much bigger draw," said a refinery industry source.

"YES, I HEAR YOU - I'M LISTENING...."

Source of picture: New York Daily News

How ridiculous does crude-oil pricing have to become before regulatory reforms occur that limit the role of financial speculation in a helpful way?

This was the question being asked by a refining industry source today after he had read this story from the Financial Times.

Call options are about to kick in which could drive the price of oil even higher even though the fundamentals are "mildly bearish", according to the FT.

Put options, when they take effect in significant numbers, have the opposite effect.

Real demand is still a long way from catching up with oil markets so heavily influenced by the financial or non-commercial players.

"Whatever too ridiculous is, and I'd argue last year was a stupid as it can get, the Saudis are likely to get on the Bat Phone to the White House at some point and demand some changes. The US government will be obliged to listen," added the source.

Inability to plan an economy because oil is so out-of-sync with the fundamentals is playing havoc with the Saudi budget-planning process, he continued.

The same applies to every government. If the other major oil producers backed Saudi Arabia, we might seem some useful changes.

This year is a positive for the world's biggest crude producer - as we discussed on Monday. The Saudi government had budgeted for an average oil price in 2009 of $40 a barrel, but this is likely to be closer to $70 a barrel, giving more leeway for infrastructure spending.

But the unpredictability of a market skewed by short-term financial sector interests could just as easily work against the Saudis.

They are pursuing a hugely important economic and social agenda which requires constant and steady funding.

At a chemicals industry level, tracking activity on the Nymex, the International Continental Exchange and the Dubai Mercantile Exchange is critically important if you want to make meaningful financial forecasts.

These forecasts should influence chemicals pricing decisions. Why push for an increase that isn't in line with the fundamentals in your markets if you believe that a spike is entirely paper-trade driven and won't last?

The danger is that if you ignore what might be underlying weaknesses in your markets, you will suffer on the downslide as customers attempt to recover their losses.

I am still thinking, as we've also mentioned before, that this rally will continue until the New Year at least - when all the fund managers' bonuses will be in the bank.

Profit taking could take place in Q1. Positions could then be rebuilt when another bottom has been reached in crude and equities ahead of the 2010 bonus payouts!

Source of picture: wartakota.co.id

WESTERNERS can often by unbelievably patronising about Asia's efforts to climb up the economic self-sufficiency ladder.

"South Korea has no business being in petrochemicals," said a very annoying US industry executive many years ago - one of those situations where your correspondent wanted to punch someone's lights out (this wouldn't have been such a good idea as he later informed me, over a couple of beers, that he used to play quarterback for his college Gridiron team).

Similarly, I became defensive on behalf of Indonesia and Pertamina the other week when criticism was levied at a "hybrid" plan to add new refinery and petrochemicals capacity.

I know too well, though, as Indonesia used to be my "patch" in the late 1990s, that corruption has been an issue.

The country's refining and petrochemical industries have repeatedly promised much, but have failed to live up to expectations.

And you could say to Pertamini, "Why bother?" seen as so much refining and petchem capacity is being added in the Middle East.

China might even end up being self-sufficient in refinery products.

But the state-owned oil, gas and refining major recognises this - hence the idea of adding capacity and sourcing from overseas, said Heru Sutrisno, the company's vice-president of strategic development and business development.

He was speaking at last week's Asia Downstream Roundtable event in Kuala Lumpur, Malaysia - organised by the World Refining Association. Click here for a copy of the presentation - 3 Heru Sutrisno.pdf.

Standing still would mean Indonesia would be short of 289,000 barrels per day of refinery capacity by 2012.

The main shortages are forecast to be in Java and Bali where two-thirds of oil-product demand might have to be imported by 2015.

Capacity additions would include building a new 300,000 barrels per day refinery - in two stages of 150,000 barrels per day - at Banten Bay in West Java. National Iranian Oil Co has committed 150,000 barrels a day to the project for 25 years.

Also under study is using condensate to boost petrochemical production and constructing a linear-alkyl benzene (LAB) plant fed by n-paraffin feedstock

Work is progressing on a 250,000 tonne/year polypropylene (PP) project, due on-stream at the Balongan refinery complex in West Java in 2011.

Dow Chemical's UNIPOL technology has been selected for the new facility which will receive feedstock from a residue fluid catalytic cracker.

There have been a lot of positive political and economic changes in Indonesia since the late 1990s, making an investment case for refining and petrochemicals far stronger. 

 But does the Pertamina plan really add up?

Confused Direction

Source of picture: China Daily

A TIGHTER monetary policy is being evaluated by China's State Council, one of the country's most-powerful legislative bodies, according to numerous media reports - including this one from Reuters.

And the chairman of China's sixth-biggest lender was quoted in the Financial Times today as saying that the government should not be afraid of a "moderate slowdown" in the economy.

"Monetary policy must not neglect asset-price movements," added Qin Xiao, chairman of China Merchants Bank.

These comments follow bank loans surging by 149% in the first nine months of this year over the same period in 2008 to $1,260bn.

Economists are divided between those who think that the surge in lending will be inflationary and those who believe it will be deflationary because of new industrial capacity.

But it seems clear the government is getting worried. It faces the hard job of easing back on stimulus without causing a double-digit recession (overhasty increases in deposit rates caused a sharp and painful slowdown in 2007).

The rate at which lending is increasing has already been slowed with stricter guidelines on preventing easy money from being channelled into speculation.

Now that something bigger appears to be in the offing, when can we expect the big policy shift?

Not before next February's Chinese New Year, said Stephen Green - economist at Standard Chartered in Shanghai.

Expect chemicals markets to be blighted (or blessed if you are trader who makes the right moves) with rumours and counter-rumours about policy changes until official announcements are made.

The longer the details remain unconfirmed, the more likely it is that buying ahead of the holidays will be quieter than anyone had expected.

Even when the announcements are out there, debate could rage on the impact of the measures - making it even harder for producers and buyers to read the tea leaves.

Source of picture: www.todaysfinancialnews.com

China's feverishly fast construction of roads, power plants and new industrial capacity has been designed to offset the decline in exports - and what a short-term success the policy has been.

Of the 7.7% of GDP (gross domestic product) growth recorded for the first nine months of this year, 7.3 percentage points was accounted for by investment and ONLY 4 percentage points by consumption growth, according to today's Lex column.

ONLY is in capitals because this seems at odds with the headline 15.1% increase in retail sales recorded for January-September.

But as we've mentioned before (click here on the link for the September archive and go down to the 16th), even the National Bureau of Statistics (NBS) thinks retail sales are a bad proxy for real consumption growth because they take into account wholesale deliveries; in other words stuff that might be sitting in warehouses or on shop shelves unsold.

And what if the government's assumption that it can tide the economy over until exports bounce back proves to be unfounded?

September exports fell, even though the decline slowed from August. But shipments were still 15% worse than they were in September last year - when Lehman Bros went belly-up.

The size of government stimulus has been enormous - probably set to be more than 15% of 2009 GDP - with bank lending registering big growth in September over August.

This led the State Council to indicate earlier this week that monetary tightening might take place because of concerns over asset bubbles.

This won't be before at least the Chinese New Year, which takes place in February 2010, according to economists.

Today, though, the NBS - which announced the nine month GDP number and other statistics that have led to lots of reports of a sustained recovery - said that current economic policies will be maintained.

So who is right, the State Council or the NBC?

Should the government be worried about debt-fuelled asset price bubbles?

Could these bubbles get out of hand forcing a withdrawal of stimulus before exports have recovered?

House prices are up by 73% so far this year, according to this article from the New York Times.

"Not even Alan Greenspan managed that," said my fellow blogger, Paul Hodges - referring to the former Fed chairman's famously lax monetary policy.

Evidence also continues that commodity stockpiling is still taking place.

"We do not expect the (stockpiling) trend to last. China's recovery is being driven by investment, but the recent pace of commodity import growth has been much faster than justified by the rise in current demand," said Mark Williams of Capital Economics in research report earlier this month.

"Inventories of many metals have more than doubled since the start of the year. Copper inventories are up 500%."

And, according to the latest entry on Michael Pettis's blog, concerns about stocks that don't make it into official data are growing as the search for some way of measuring these hidden inventories continues.

Pettis quotes a Wall Street Journal article which says that as much as 900,000 tonnes of unreported copper stocks could have built up in China.

One could argue that the surge in commodity imports indicates strong underlying demand.

But how can this be if imports are down and consumption as a proportion of January-September GDP growth was so low?

And what about all these reports of high inventory levels? 

Further - a front page article in today's Financial Times points out that growth in nominal terms for the first nine months was 4.7%, meaning deflation was behind the higher headline number.

Falling prices hardly suggest a domestic economy in the midst of a consumer boom.

The bubbles in real-estate, equities and commodity markets such as the Dalian Commodity Exchange - which provides polymer futures contracts - are a separate ossue.

These bubbles are being pumped up by the speculators with access to easy bank lending - different, of course, from the average guy in the street who might have lost his job because his factory has closed down.

September chemical import data is due out any day soon - and we'll give you the details as soon as we can via our friends at International Trader Publications Inc.

Positive statistics might well be seized on by chemicals traders going long and chemical companies trying to talk-up share prices.

But the numbers will need to be analysed in light of all the above.

Source of picture: www.msnbc.msn.com/id/23512037/

CHINA is making export gains at the expense of other higher-cost competitors that might not be sustainable because of reasons including rising trade protectionism and economic rebalancing.

Chemical companies need to factor in this risk - and take into account how overall demand might merely be shifting location rather than increasing.

Knit apparel is a good example where, according to this article by David Barboza in the New York Times, American imports from China jumped by 10% in July this year compared with the same months in 2008.

This was as US imports from Mexico, Honduras, Guatemala and El Salvador fell by 19-24%. Barboza was quoting data from Global Trade Information Services.

It is not just emerging markets that are suffering as a result of China's increasing dominance in textiles.

The beleaguered European industries are also in the firing line with the EU evaluating extending antidumping duties on imports of shoes from China and Vietnam.

"Reductions in raw-material import tariffs and increases in export-tax rebates have helped Chinese apparel producers push their prices down," said said Ying Min Ye, president of Beijing-based Chem1 Consulting at the Downstream Asia Roundtable Asia oil and gas event in Kuala Lumpur. Malaysia.

The conference, organised by the World Refining Association, took place earlier this month.

You can add to these advantages a Yuan which is now being pegged to the US dollar, resulting in steep depreciations against other Asian currencies. Between March and September, the Yuan had fallen in value by 10% against a basket of Asian currencies, said Barclays Capital.

A further huge advantage is, according to Nicholas Lardy of the Peterson Institute for International Economics (quoted in the same Barboza article), flexibility in labour markets.

This means the ability to cut wages without worrying about troublesome trade unions or restrictive employment legislation.

The biggest comparative boost of all might well be the flood of cheap lending. China has pump-primed its economy through a huge increase in bank loans.

The US removed safeguard duties against imports of several categories of Chinese clothing last December, according to a new report from Textiles Intelligence, providing China with another edge.

The EU removed similar safeguard duties in December 2007.

Both sets of duties were the result of damage caused to local industries when The Agreement on Textiles and Clothing (ATC) came into effect on 1 January 2005

Here, therefore, could end some of the head-scratching over steep increases in fibre-intermediate pricing in 2009.

Restocking and crude oil have been important factors.

What might have also benefited the market are China's gains at the expense of others.

The country's yarn output grew by 9% in the six months to June 2009 over the same period last year, Yin added at the same event.

Fibre output rose by 10% and polyester production by 13%. Click here for a copy of his full presentation - .5 Yingmin Ye 1.pdf

It's not just in low-end clothing where China is making gains, but also in electronic goods - at the expense largely of the Japanese.

Japan has seen its share of electronic-good exports to the US fall by 18% in 1999 to 7%, added Barboza.

In the last year alone, China's market share of the US electronics goods market has doubled from 10% to 20%.

Sales of electronic materials to China were up by 15% in Q3 over the second quarter, said Andrew Liveris, CEO of Dow Chemical, when the company's third-quarter results were released last week.

Coatings and infrastructure sales rose by 16%, polyethylene (PE) 10% by and the automatic sector 5%, he added.

From a Dow perspective, if it's taking sales away from Japanese electronic chemicals companies all well and good.

But displaced demand doesn't necessarily add up to greater overall demand.

Another important point is that when all is said and done, China's exports as a whole are still down on the first half of 2008.

China exported $521 billion worth of clothes, toys, electronics, grains and other commodities in H1 2009, according Barboza.

Although lower than declines suffered by other exporters such as Japan and Germany, this figure still represented a 22% fall over the first half of last year.

Returning to the theme of winners and losers from China's boom, Australia - despite seeing its currency rise in value by 40% against the Yuan in March-September - has made big net gains through a surge in commodity exports.

It's the same story for Indonesia.

"Commodities and high-tech goods have gained [because of the recovery in China]. But anything in between, China can often produce itself, so countries in these areas are under more pressure," said Tai Hui, an economist at Standard Chartered in Singapore in this article from the Financial Times.

Malaysia and the Philippines were losing out because they competed directly with China in many export markets, he added.

"Market stability has improved, but we continue to remain cautious about the ability of some economies to sustain growth," continued Liveris when the Q3 results came out.

"This is especially true of the US and Europe, and until these economies return to 'normal', we believe global growth will be muted."

This is also especially true of China.

Last week we discussed how domestic consumption was much less than investment as a driver of January-September GDP (gross domestic product) growth.

The relatively high investment component of GDP points to several risks and concerns:

*An increase in export-based industrial capacity. Now that it's on the ground, China will be tempted and able to keep this capacity running, even in very weak market conditions

*At the moment the US seems to be more worried over China's willingness to keep on funding its huge deficits than damage to jobs caused by aggressively cheap imports. But how long will this last as unemployment climbs towards 10%? Could we see a big increase in trade protectionism?

*Bubbles in real estate and equities. Real-estate prices have risen by 73% so far this year. Confusing signals are emerging from the government over whether or not monetary tightening will occur in 2010. Leave it too late and these bubbles could get more out of hand; act too hastily and the economic rebound will be set back

*Assuming that the investment number reported for Q1-Q3 also includes money spent on stockpiling oil and other commodities, will the high levels of imports continue? Monetary tightening is a threat along with sudden dips in import demand as China starts running off inventories

*Meagre underlying growth in domestic consumption. Nominal GDP only increased by 4.7% in the first nine months of this year, indicating that deflation was behind the higher headline number of 7.7% Although a lot of people might have made theoretical and real money out of real estate and equities, this doesn't suggest a healthy state of affairs for the average worker.

A weaker currency, import tariff rebates, increases in export taxes and soft and plentiful bank loans for new capacity hardly suggest rapid economic rebalancing towards domestic growth.

Has China put in place the right policies to move quickly enough towards this rebalancing to keep the rest of the world happy?

Can it move any quicker given the country's social and economic pressures?

By Malini Hariharan (Malini is now joint blogger for Asian Chemical Connections)

South Korean petchem majors are expected to post another quarter of bumper earnings thanks to high operating rates and strong sales volumes.

A Seoul-based equity research analyst think this year could well turn out to be a bonus. He expects the fourth quarter to be tougher with operating results likely to be lower than Q3, partly because of the negative impact of new capacities flooding the market. But strong results in the first three quarters of the year should help the companies post favourable numbers for the full year.

This was evident in LG Chem's recent announcement of an 83% year-on-year increase in Q3 net income. Operating profit for the petrochemicals division was up 63% from the same period last year but down 2% from the second quarter (see slide). The big gains came in from the LCD and battery businesses on the back of rising mobile handset and notebook sales. Other South Korean companies are due to post their results in the next few weeks.

LG's success in diversifying its portfolio has caught the attention of other South Koreans.

SK Energy is set to challenge LG in the battery business. It was recently selected to supply lithium ion batteries to Daimler AG's Japanese unit. LG Chem has already signed a contract to supply batteries for a new hybrid car to be launched by General Motors.

And Hanwha announced yesterday that it would invest $673m in the solar energy business. It plans to start a new plant in Ulsan for producing solar batteries capable of generating 30megawatts of power annually. Hanwha's ambition is to become one of the top ten global manufacturers of solar batteries by 2015 with a worldwide market share of 5% and revenue of approximately $841m. To achieve this number, annual production would be raised to 330 megawatts in 2012 and 1 gigawatt in 2015.

Given the growing competition in petchems it makes sense for the Korean companies to branch out. But the analyst is not convinced that they are all moving in the right direction. For instance, the solar energy space is already crowded and he is not sure if Hanwha will be able to make money in solar batteries.

The odd one out is Honam Petrochemical which has not yet diversified from petchems. The only announcement by the company this year was a decision to merge affiliate KP Chemical. It is said to be looking at acquiring a stake in downstream engineering plastic and speciality chemical businesses in South Korea. But it will have to act faster to reduce its exposure to commodity petchems.

By John Richardson

We don't have the actual data yet (hopefully, we'll be able to give you the numbers later this week), but......

......China's commodity chemicals and polymer imports "continued to amaze" in September with monoethylene glycol (MEG) shipments hitting an all-time high, said Jean Sudol, president of US-based International Trader Publications Inc (ITP).

"Imports of most of the commodity polymers we follow continued heavy in September, with relatively small changes, most of them positive from August," added Sudol, whose company provides trade data and analysis on chemicals and polymers.

The commodity polymers ITP tracks showing increases were low-density polyethylene (LDPE), linear-low density PE (LLDPE), high-density PE (HDPE), polypropylene (PP), ethylene vinyl acetate (EVA) and propylene copolymers.

"Polyvinyl chloride (PVC) trended downwards for the third month in row with polystyrene (PS) mixed," she added.

Imports of the engineering polymers acrylonitrile butadiene styrene (ABS), polyacetals and styrene acrylonitrile (SAN) also rose, continuing an upward trend that has lasted several months.

"Among the major organics, imports of ethylene dichloride (EDC), vinyl chloride monomer (VCM), methanol, styrene and propylene were also up from August. MEG reached a new all-time high."

But benzene imports remained low, maintaining a trend that began in June, with ethylene shipments slowing moderately.

Domestic demand is still a relatively low proportion of GDP (gross domestic product) growth and so a lot of this stuff must be going into gains made in re-exports of finished goods.

Commodity chemicals pricing is more affordable than in H1 last year.

A depreciated Yuan versus the currencies of other developing countries, raw-material import tax cuts, increased export tax rebates and very flexible labour markets have also made China's exports more competitive.

There's also a mountain of cheap and plentiful bank lending to make life even easier for the Chinese re-exporter.

The end-result is that - as we discussed yesterday - China has seized market share in export sectors including textiles and garments and electronic goods.

Chemicals companies whose main business is with China might be benefiting, whereas exporters to other countries could be losing out as could chemicals industries in these other countries.

China's finished product exports might be down in value terms. But how much does this matter if you have such big competitive advantages and state-owned banks willing to bail you out if you get into trouble?

In some cases there could have even been export-volume improvements in 2009 over pre-crisis levels. This, along with the lower pricing, could help explain what seem like counter-intuitively high record-high shipments of chemicals and polymers to China.

There are winners and losers in other export-focused countries.

It's fine if you supply, for example, commodities or high-tech components to China to be assembled in to finished electronic goods.

But it's not so rosy if you compete head-on in industries such as textiles and garments and plastic toys.

Chinese manufacturers are likely to have the capacity to discount even deeper thanks to a supportive government. Further discounting might become essential if other areas of the economy falter.

Even with all this backing, margins are likely to become tighter - especially as the widespread perception is that oil prices are heading back to $100 a barrel. Perceptions make the price through the futures market.

This will leave the Middle East, with its increasing capacities, in a very strong position to take advantage of what could be an even longer bull-run in commodity chemical and polymer exports to China.

More of the cheap stuff?

Source of picture: www.thelocal.de

Some of the China import data for September is now available - showing record-high imports of monoethylene glycol (MEG), ethylene vinyl acetate (EVA), polyacetal, polycarbonate (PC).

"I have given up trying to figure this out. There is not sufficient accurate information anywhere to read a trend. Reality is that they continue to buy to put SOMEWHERE," said a senior polyolefin industry source last week.

"Physical and future markets are continuing to show strength, but export and domestic consumption data continues to be weak."

Now he is beginning to think, like this blog, that a lot of these extraordinary volumes have to do with China making gains in specific finished-goods export markets. A lot more data-crunching is needed to stand this up.

A note of caution and context - a lot of these September imports might have been booked in July/August before the recent price declines.

There could have also been some stock building ahead of the long October holidays (when we get the October figures any dips will also need to take into account the holidays).

If China is making big gains in finished-goods export markets thanks to all of its competitive advantages, you can read the latest US Conference Board confidence index results either way.

The failure of US consumers to respond to better equity and housing markets could indicate a deeper shift in the way Americans spend, said Ian Shepherdson, chief economist at High Frequency Economics - in this FT article on the last Conference index.

More thrift might give the Chinese the ability to cost-cut their way into bigger slices of export markets.

Such a weak level of confidence, though, points to a poor Christmas sales season. This would leave a lot of goods left stacked on US shop shelves, pointing to a big New Year dip in commodity chemical exports to China.

But again - this would have to be put in the context of the Chinese New Year in February!

As this updated table from my colleagues at CBI in China illustrates, cracker-complex delays in China have the potential to further stagger the arrival of new volumes into the market.

Chinanewcapacitytable.doc

This follows the widespread problems in starting up new capacity in the Middle East.

The 800,000 tonne/year Fujian Petrochemical/ExxonMobil/Saudi Aramco cracker is on-stream, but there have been operating issues with downstream PE.

The 1m tonne/year Sinopec/SABIC Tianjin cracker will undergo trial runs from 28 December and so commercial production won't be until H1 2010.

But the Dunshanzi complex, centred on a 1m tonne/year, was commissioned on schedule in September. The operating rate is reported to be 85% with product being sold across China.

2.56m tonne/year of capacity is due to start-up this year compared with the original 3.56m tonnne/year.

In Thailand, the new  400,000 tonne/year PTT linear-low density polyethylene (LLDPE) plant is due to start next week, but the 1m tonne/year cracker won't be on-stream until the end of the year/Q1 2010.

A new 300,000 tonne/year low-density polyethylene (LDPE) project is not due to be commissioned until Q3 next year, according to ICIS Plants and Projects.  

The start-up is being fed by ethylene from existing crackers, but it's not clear whether this will be sufficient to quickly achieve optimal rates

Further out, there appears to be some more good news for existing producers from China.

The 800,000 tonne/year Fushun cracker, originally scheduled for 2011, has been delayed to 2102. An associated refinery has already started up, but only preliminary work has taken place on the petrochemicals complex.

Wuhan - a Sinopec and SK Energy joint venture - has been pushed back from 2011 to 2012-13, as has the PetroChina-owned Daqing project.

There are also unconfirmed reports of operating problems at several Middle East complexes brought on-stream this year.

"I think an on-going problem in the Gulf Co-operation Council (GCC) region is going to be the shortage of natural-gas supply," said an industry source.

"Every summer, until this problem is resolved, you are going to see a big pull of gas into the power sector at the expense of petrochemicals."

He suggested that there might also be issues with stabilising production at several new gas-phased polyethylene (PE)  plants due to their scale.

Existing crackers in Iran are expected to continue to experience deep rate cuts in winter as gas is diverted for domestic and power-generation consumption. Iran has plenty of natural-gas reserves, but political difficulties have slowed down investment in extraction.

By Malini Hariharan (Malini is now joint blogger for Asian Chemical Connections)

It helps to have a commodity bull on your side and that's just what the Dalian Commodity Exchange (DCE) has succeeded in doing. Jim Rogers, the noted investment guru, will be a senior advisor to the exchange.

Jim Rogers is, as always, positive on the future of China and also commodities (see TV interview below).

It is not yet clear what Rogers will be doing in this new role but his appointment will help DCE realise its ambition of becoming a leading commodity exchange in the world. The Futures Industry Association (FIA) says that the DCE is the largest futures exchange in China and is ranked ninth in the world. It has the world's biggest trading market for plastics (lldpe and PVC) and the second-largest for agricultural products.

This blog has been regularly highlighting the growing volumes of lldPE and PVC transactions on the DCE. Lldpe contracts totalling 75.719m tonnes have been traded on the exchange so far this year, up 185.67% from last year. PVC contracts, which were was introduced in May, totalled 21.829m tonnes.

And the exchange could see more action in the coming months. China Daily reports growing interest from major foreign traders to participate in Chinese exchanges. They will have to work their way around government regulations but leading banks such as Goldman Sachs, JP Morgan and Barclays Bank have compelling reasons to invest in China. The paper says that the Shanghai exchange's copper futures now rivals that of the LME while DCE's soyabean volumes already exceed that of CBOT.

Source of picture: Businesweek

More evidence is emerging of the big rebound in Chinese exports resulting from government subsidies, including a Yuan now pegged to the dollar, soft and plentiful bank loans and export-tax rebates.

More than 9,000 quality control inspections of goods set for overseas shipment took place in Q3 this year - a 32% increase over the same quarter last year, said AsiaInspection, which carries out monitors these inspections.

Book and stationery inspections were up by 24%, toys 32%, shoes and fashion accessories 58% and textile apparel 63%, according to this news report on the latest AsiaInspection findings.

A further boost to China's textiles industry was the EU's removal of restrictions requiring companies to source a percentage of their textile business from within the EU in January 2009, the report added
.
But Q3 2008 saw the collapse of Lehman Bros and the virtual grinding to a halt of the global economy, so comparisons with the third quarter of this year were always likely to appear good.

Export trade has bounced back from its low point. It is widely recognised, though, that it could be a very long time before shipments to Western markets return to 2007 levels.

Still, the October Canton Trade Fair reported a 20% increase in electronics, hardware, tools, transport vehicle and building material exports orders from overseas buyers as against the April Canton Fair.

Together, these products account for around 60% of China's total exports.

And the damage done to China by the crisis is far less than elsewhere.

For example, the country's semiconductor market is expected to fall 6.5% by value to $68bn in 2009, down from $72.9bn last year, according to this report, quoting iSuppli.

This compares with a forecast 16.5% fall in the global chip industry.

Consumer electronics exports by volume are, however, expected to be down by 10% to 30% in all categories except LCD-TVs and Set-Top Boxes, where growth is expected.

What on earth does this all add up to then?

Here's what I think:

*China's exports have rebounded from their low points more quickly than other countries due to all the government support.

*Because of its ability to aggressively discount, China is gaining bigger market shares from other countries in certain export sectors - most notably textiles and garments.

*China is likely to be able to grow market share even further as it can cut costs by even more, notwithstanding a big increase in trade protectionism

But, as we have already said, demand in the West is unlikely to return to 2007 levels for a very long time and so China is only gaining bigger slices of a much smaller overall pie.

The country's export trade has also been boosted by cheaper raw materials as result of import tax cuts and lower pricing.

The dramatic increase in chemical import volumes is partly due to both the above factors - and, of course, stronger domestic demand.

Take methyl methacrylate (MMA) and polymethly methacrylate (PMMA) as examples. Pricing remains way down on its July 2008 peak, as this graph MMAPPMAPricing200809.ppt from ICIS pricing shows.

MMA imports have risen by 293% in January-September over the same month last year, according to China customs. In September, overseas shipments increased by 87% to 16,309 tonnes.

PMMA imports were up by 67% in January-September with September cargoes totalling 20,829 tonnes - a 22% increase.