Lots more empty ones like these?
Source of picture: http://www.chrismartenson.com
By John Richardson
THE dramatic increase in China's money supply during 2009 - the result of an estimated 10 trillion Yuan increase in lending over the previous year - might continue to support plastics and chemicals demand growth during the rest 2010, an industry source suggested today.
"It could be that the amount of new money sloshing around in the Chinese economy makes it impossible for the government to mop up the liquidity and so the investment bubble will keep on expanding. This would be a threat for the longer-term, but might support growth during the rest of 2010."
(But clearly, the longer the bubble expands the more painful the eventual correction could be. A White Paper, China's Red Flags, by Edward Chancellor of the global investment firm GMO argues that China is displaying many of the characteristics of previous investment manias that have ended in disaster).
Taking just polyethylene (PE) as an example, the industry source said that this might mean demand growth wouldn't fall by as much as is being predicted by CBI - the Shanghai-based commodity information service (from 30.3% in 2009 to 8.6% in 2010).
"The other argument for strong growth across all plastics resins this year is that we are now at around 16 months since the announcement of the $586bn stimulus programme in December 2008," he continued.
"We are at that point in time when a lot projects funded by the stimulus will start entering the construction phase (infrastructure, new industrial capacity).
"As soon as the stimulus programme was announced, traders and distributors in everything that can be cheaply and easily put in storage for the long-term - such as plastic resins, steel, aluminium, copper, zinc etc - started stocking-up like crazy in anticipation of construction on these projects starting.
"So now we should see some inventory draw-downs as projects start construction, but I think stocks will be replenished because there is so much liquidity in the Chinese economy, enabling the speculators to carry on speculating.
"They already have the money, via previously issued bank loans or profits made from previous trading, and so the reduction in new loans being issued doesn't matter to them."
New loan issuances went down by 43% in Q1 2009 over the same period last year, fellow blogger Paul Hodges pointed out last month.
So does the rise in China's money supply help explain why imports continued to soar in March with low-density polyethylene (LDPE) and linear-low density polyethylene (LLDPE) hitting new records?
"The answer for the high import numbers could be partly that money is still there for speculation," continued the source.
"But it could also be because some imports that arrived in China in January and February were only shifted from bonded warehouses during March - into either local warehouses or straight to domestic end-users.
"When material is in a bonded warehouse it's like it's sitting in an airport lounge. It isn't actually recorded as having entering the country by China Customs until it enters the local supply chain."
These are, obviously, the views of only one source.
Next week the blog will test these opinions out at the Asia Petrochemical Industry Conference (APIC) in Mumbai, where the delegate number is forecast to exceed 1,200.