No More Of This…

FutureTrendsPartPart2Singapore.jpgBy John Richardson

THE big hope is that once China returns from its National Holidays (1-7 October), petrochemicals markets will enjoy a big and sustainable recovery.

It is not going to happen.

Throughout this year, the hope has been that the recovery is just around the corner. People have argued that deteriorating economic data has been a good thing, in that it has given the central government a stronger motive to re-stimulate the economy.

But these views fail to adequately take into account that China is going through “secular” changes in its economy that will take several years to play out.

There is a real possibility, as one recent report has suggested, that China’s real GDP growth will range between 4-5 percent per annum in 2013-2016.

We also have to worry about consistent reports of enormous inventories of manufactured goods, resulting from overproduction and overcapacity across many Chinese industries. These stock levels could take several years to work-off.

Plus, of course, there are all the uncertainties over the leadership transition. 

And there can be no return to the “Supercycle” era, when growth was supported by excessive credit availability and favourable demographics in the West that ensured a ready market for China’s exports of finished goods.

The new China is going to involve a painful and long adjustment for the global chemicals industry, where “solutions” will matter more than simply shifting as many plastic pellets as possible to China to be processed and re-exported.

It will be about providing chemicals and polymers to solve China’s environmental crisis – for example, water shortages – for those companies who are not to the extreme left of the cost curve.

Meanwhile, the Middle East will continue to take the lion’s share of commodity exports, as China also raises its commodity petrochemicals self-sufficiency through, for example, 10m tonnes/year of new coal-to-olefins capacity.

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