By John Richardson
Asian polyethylene (PE) prices slumped by $90-130/tonne last week on the eurozone crisis, the fall in oil prices and the imminent arrival in China of large volumes of Iranian material, according to ICIS pricing.
A further factor dragging down the market was the start-up, expected by end-May, of Qapco’s low-density polyethylene (LDPE) plant in Qatar, added ICIS.
Saudi Polymers is, in addition, due to bring on-stream two 550,000 tonne/year high-density PE (HDPE) plants and a 440,000 tonne/year polypropylene (PP) facility by the end of Q2 this year..
Asian polypropylene (PP) prices also fell last week, by $70-130/tonne, on the eurozone crisis and the decline in crude, said ICIS.
Disappointing economic data on China, which was released last week, is hardly going to help a market that has been struggling for months.
The bad economic data included:
*Growth in imports of just 0.3 percent in April compared with the same month last year. This was against forecasts of an 11 percent increase. The average monthly growth rate in imports during 2011 was 25 percent.
* Exports grew by just 4.9 percent – half as much as economists had expected. This followed a disappointing Canton Trade Fair.
*Industrial production grew by 9.3 percent in April year-on-year, the weakest reading in three years and well below the 11.9 percent increase in March.
Financial markets, and maybe be the odd poyolefins trader, might take perverse cheer from the bad news on the grounds that it makes major economic stimulus by the Chinese government more likely. The fall in April inflation to 3.4 percent, from 3.6 percent in March, supports this view. This compares with the government’s 4 percent annual inflation goal.
But fellow blogger Paul Hodges made the excellent point last month that Chinese politicians were too pre-occupied, due to the biggest political crisis since Tiananmen Square in 1989, to spend much time focusing on the economy.
His comments were backed up by Jamil Anderlini and Robin Kwong in the Financial Times on Saturday.
They wrote that last month’s purge of Bo Xilai had left Chinese politics in disarray, with “much of the bureaucracy unsure what the final outcome of the power struggle will be.”
In theory, economic decisions to adjust interest rates are in the hands of the State Council, headed by premier Wen Jiabao, they added.
But in practice, major economic decisions, such as altering interest rates, are in the hands of the nine-member Politburo, which is too divided by the Bo purge to reach any consensus.
As a result, the FT believed that the most likely response to the weak growth figures was a further cut in the bank-reserve requirement, as this does not require top-level consent.
On Saturday, the reserve requirement was, indeed, cut – by a further 50 basis points.
But it is debatable whether even an interest-rate reduction, viewed as a more effective way to boost the economy, would make much difference.
“Our customers in China are very cautious and will, I think, remain so until the end of this year,” said a source with a global PE producer.
“Even if the economic environment improves, uncertainty over the outcome of the leadership transition is going to limit their appetite for credit risk.”
The once-in-a-decade leadership transition takes place at the end of this year.