Why Should Q2 Be Any Better?



ChinaPEGTISQ1.jpg 

By John Richardson

THE question being asked during the first quarter of this year was, “Why shouldn’t Chinese chemicals demand come roaring back after a disappointing 2011?”

The relevant question now, as we move into Q2, is, “Why should it come roaring back?”

Chemicals analysts, and quite a few traders in products such as mono-ethylene glycol (MEG), were misled into believing that a strong cyclical rebound was inevitable.

The logic, on the surface, seemed to stack up. But what some people failed to take into account were the major structural changes taking place in China’s economy, the persistent weakness of exports of manufactured goods to the West and demand destruction caused by high oil prices.

And as my fellow blogger Paul Hodges points out, China’s Politburo is too preoccupied with the leadership transition to have time to focus on a new stimulus package.

Further, as a polyolefins industry source told the blog in Singapore this week, food-price inflation is still very high. This means China’s leaders, even if they had the time, wouldn’t be able to risk another hefty dose of fiscal stimulus.

The chart above, from Global Trade Information Services, details what happened in polyethylene (PE) in Q1.

The chart includes combined January/February volumes (red column) compared to 2011 (green) and 2010 (blue).

As Paul Hodges also points out, it shows that:

•Total demand is up only 12% versus 2010, well below GDP growth.

• Local production is up 28%, despite last month’s slowdown.

• Overall imports are down 1%, whilst exports are up 160%.

• Middle East and South East Asian net imports have grown rapidly.

• North East Asian, NAFTA and EU net imports have fallen sharply.

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