By John Richardson
CHEMICALS analysts, and some senior company executives, are telling us that growth in China will bounce back in the second half of 2012.
To give these forecasts some historical context, the recovery was supposed to happen in January, then February, then March, then April and now at some point in the second half of the year (most commentators and company executives now believe that the second quarter, as a whole, will be difficult).
The longer that the recovery is delayed the more that 2012 earnings forecasts will be under pressure for downward revisions.
We think that the structural changes taking place in China's economy, and the weak external environment, make these revisions highly likely.
Petrochemicals markets point to a very weak first quarter. Our colleagues at ICIS pricing have detected no signs of a recovery since the end of Q1.
In the case of polyethylene (PE), as the chart above illustrates, Q1 demand was down 4% (red column) versus 2010 (blue). Contrary to popular belief, PE demand is not growing at 1.5 or 2 times GDP, but has actually gone ex-growth.
North American PE exports to China have fallen 61% since 2010.
"China's ruling communist party does not care that the US cost base is the second cheapest in the world, due to shale gas," says fellow blogger, Paul Hodges.
"Instead, it knows it must maximise job creation to remain in power. It therefore continues to increase China's own production, up 7% over the period."