Recovery Always 3-6 Months Away

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By John Richardson

THE recovery always seems to be three to six months away.

Thus, as hope fades for a Q4 economic rebound in China, a marketing and sales executive with a major European speciality chemicals player told the blog earlier this week: “Everything will be fine in the New Year once China’s new leaders are settled in.

“I think they will adopt very accommodative policies for growth.”

But, assuming that the political handover is handled smoothly, and that is a pretty big assumption, China’s new set of leaders will still face the same long-term structural problems.

Those at the ground level of China’s economy are telling us that something is very wrong.

Vale, the world’s largest iron-ore producer, has said that China’s golden years of economic growth are over, reported Bloomberg.

“The Chinese economy is only at the beginning of a harsh winter,” said Zhang Hongxia, chairman of China’s largest cotton- textile maker in this second Bloomberg article.

“China now is facing a situation where everything from coal to steel inventories is piling up.”

Synthetic resins face their own inventory problems.

The above comments are in line with what we have been hearing from polymer industry executives with responsibility for China - another group of people at ground level. They have identified changes in the behaviour of their customers which reflects what is happening in the wider, real economy.

The above chart illustrates what we discussed on Monday - how low-density polyethylene (LDPE), the “canary in the coal mine” polymer, is struggling with its worst margins since at least 2000.

Other petrochemicals and polymers also appear to be struggling, according to data provided to ICIS by the China Petroleum and Chemical Industry Federation (see table below). January-July and July production in China was down for several products.

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