China Yuan-Backed Export Flood Begins

PETdemand2013

By John Richardson

CHINA exported 45,000 tonnes of purified terephthalic acid (PTA), which underlines how a weaker Yuan is being used as a way of compensating for weaker local demand up and down the polyester chain. The same applies to many other industrial chains.

PTA imports also halved in the first quarter of this year compared with the same period in 2013 – and were a quarter of 2012 levels. This has involved a decline in volumes from 1.7m tonnes in Q1 2012 to just 400,000 tonnes in Q1 2013, points out fellow blogger, Paul Hodges.

Sure, of course, PTA capacities have surged. But early last year, several commentators insisted that despite the new capacities that were on the way, domestic demand would be sufficient to prevent a severe supply overhang.

This is what has subsequently gone wrong:

  • Credit creation has dramatically slowed down as China’s government tries to tackle overcapacity across many industries, bad debts and an environmental crisis caused by excessive lending.
  • It was the “wealth effect” of rising property and other asset values, resulting from the credit boom, that was at the heart of the surge in chemicals and polymer demand between 2009 and 2013.
  • if we remove this “wealth effect”, we are left with a country where average per capita urban income levels were just $4,769 in 2013, according to the Chinese government’s National Bureau of Statistics (NBS). In rural areas, the NBS number for 2013 was only $1,276. Take away the temporary sugar high of the credit surge and you could be left with a country that cannot afford as many new cars, washing machines, TVs – and perhaps even cheap polyester shirts – as some people have estimated.
  • And the steep fall in the availability of new credit (it was down by 19% year-on-year in March) is creating a harmful ripple effect amongst companies as they run short of finance. “A network of loan guarantees set up to improve companies’ access to credit in one of China’s richest districts is creating new risks of default as some debts sour. Chinese media have reported on a credit crunch developing among steel and textile manufacturers in Hangzhou, south of Shanghai in Zhejiang Province, as the failure of some to repay loans pushes their burden onto healthier companies,” wrote Reuters in this story.

The signs were there as long as three years ago that this economic rebalancing would have to happen, but many companies chose to ignore the warnings.

The global polyethylene terephthalate (PET) market is showing similar signs of stress.

China’s bottle-grade PET exports increased by 49% month-on-month in March to 221,183 tonnes, official data shows.

Year-on-year, exports were up by of 36% from 162,548 tonnes in March 2013.

China is sending more PET resin to the US west coast and Mexico, suppressing PET prices in both countries, a US recycling source told ICIS news in this story.

Large amounts of cheaper PET resin from China were also entering Mexico, he added.

“I don’t mean to be a chicken little here, but the party is China is coming to an end. The business of China being an unstoppable juggernaut is over,” said the source.

And the party, as the chart above further supports, has been all about China.

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