Recovery? What Recovery?

ChinaPEAugSept2012.jpgBy John Richardson

CHINA’S apparent demand for polyethylene (PE), which is a measure of local production plus imports, rose by 4% in January-September this year compared with the same periods in 2010 and 2011, according to Global Trade Information Services (see the above chart).

This is an improvement on the 1% growth seen in the January-August period and, thus, could be interpreted as a sign that the market is in recovery.

But the fact that this is apparent demand is important. As we discussed last month, August import volumes surged on traders speculating that China’s political problems would be resolved by Q2 next year.

We worry that China’s political problems will not be resolved by the second quarter and, indeed, possibly not for several years. China is also entering an extended period of lower growth for strucural reasons, we believe. The traders might, therefore, end up getting their fingers burnt.

Meanwhile, PE pricing continues to decline on a depressed demand outlook, according to ICIS. Asian pricing was assessed at $10-30/tonne lower for the week ending 26 October.

Pricing may further decline on a more bearish short-term outlook for crude oil as a result of Hurricane Sandy. The reason is that Hurricane Sandy has affected a big oil-consuming region of the US, as against the huge damage to production caused by Hurricane Katrina.

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