Source of picture: www.en.cn.national
By John Richardson
THE decline in China’s GDP (gross domestic product) growth from 11.9% in Q1 to 10.3% in the first quarter is, no matter how you try to dress it up, bad news for the chemicals industry.
Government officials and some economists are arguing that the moderation is not that dramatic and indicates success in taking heat out of the economy.
But this ICIS news article points out that further growth contractions are ahead with third-quarter growth expected to slip to 9.8% and Q4 to 9.4%.
Interestingly, government efforts to achieve emissions targets are expected to damage industrial production – still by far the biggest contributor to growth – through the closure of energy-inefficient chemicals and other plants.
The drop in Q2 GDP confirms what has been evident in chemicals markets for several months now as demand from key end-use sectors such as construction has slowed.
In the case of polyethylene (PE), as we wrote yesterday and last week, weaker economic expansion comes at a time of high inventory levels. It could be as late as Q2 2011 before stocks are normalised.
And the price falls across many commodity chemicals that we’ve seen over the last few weeks are also partly the result of the China slowdown. Other common factors have been a dip in exports of finished goods from China to the West and the volatility in crude, which seems to be resulting in more hand-to-mouth buying patterns among end-users.
A source with a major monoethylene glycol (MEG) producer told the blog earlier this week: “We have actually seen weaker-than-expected demand in China since the end of the Lunar New Year in February.
“Coastal storage tanks are full and with China MEG demand growth this year as 6-7% against a global capacity increase of possibly as much as 10%, we have problems.”
To quote an example for another product chain, Asian June toluene diisocyanate (TDI) contract prices fell $350/tonne from May on weak demand and a supply glut.
It is time to take stock of what will be a much more difficult environment over the next few quarters.