Dow's Liveris On The Mark On China?
By John Richardson
Dow Chemical's CEO, Andrew Liveris, was reassuringly upbeat about the state of demand in China last week when he described it as "quite robust" during an analysts' call on the release of the company's Q1 results
And very significantly, given that we can trust that his comments were based on plenty of carefully studied reports from his team in the field, he did not believe that China was suffering a big inventory overhang problem.
In the longer-term, he also echoed conventional wisdom that China's new five-year economic plan would stimulate domestic consumption.
"They are spending on infrastructure, energy, the environment, new materials for aerospace and automotive, and that is all very directed," he said.
"In the next five years, they want to spend $1.7 trillion (€1,120bn) in these sectors. I don't think we have a lot to worry about in the short term."
The blog wishes, based on the evidence of what it is hearing from its contacts, that it could share Liveris's confidence.
And March polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) official trade data also seems to point to problems of high stock levels and weak demand.
China imported 3% less high density polyethylene (HDPE) in March compared with the same month last year at 357,077 tonnes, while its exports of the same product more than tripled to 21,663 tonnes.
In the case of linear low density PE LLDPE), China's imports fell 14% year on year to 234,881 tonnes, but its exports of the polymer nearly quadrupled to 4,677 tonnes.
Its low density PE (LDPE) imports slumped 45% to 124,136 tonnes, while it shipped out 151% more LDPE at 7,000 tonnes.
PP import volumes also slipped, down 9% at 339,240 tonnes with a corresponding sharp increase in exports at 15,478 tonnes, nearly double the March 2010 levels.
China's polyvinyl chloride (PVC) fell 12% last month to 130,548 tonnes, while exports surged by 50% to 35,978 tonnes.
"The China market has been incredibly weak since the end of the Chinese New Year in February. This is the worst I have known it in seven years doing this and, as a result, I am playing a lot more golf," a Singapore-based polyolefins trader told us late last week.
"The trade data confirms all the efforts by traders to reduce stock levels through re-exports to other regions, such as Europe, where pricing has been stronger."
Liveris conceded that China was suffering from some transitory problems caused by tightening of credit.
The big question is if by transitory we end up reflecting back on an extended struggle against deeply-rooted inflation, with all its risks for growth.
Some perhaps good news emerged on Sunday 1 May when the country's purchasing manager's index (PMI) for April registered a decline compared with March, returning to its level in January.
This indicates that just maybe the government is beginning to win its struggle against inflation. However, a lower PMI indicates reducing manufacturing activity and therefore obviously less demand for petrochemicals.
And the government remains caught between a rock and a hard place: Overreact and it risks a sharp economic showdown or fail to instigate sufficient tightening measure and inflationary pressures will continue to build, leading to bigger problems down the line.
PE pricing in China recovered slightly last week as certian grades rose by $20-40/tonne, according to our colleagues at ICIS pricing.
But this improvement wasn't attributed to better demand but instead Sinopec's plans to cut production in May.