China Peak Manufacturing Season Disappoints

JulyVolumeProxy

By John Richardson

THE chemicals industry, because it supplies so many downstream manufacturing industries, is an excellent early indicator when something is going right or wrong with an economy.

Take note, therefore, of the July Volume Proxy, which was published earlier this week by Paul Satchell, chemicals analyst with UK investment bank Cannacord Genuity (the Volume Proxy gauges volumes, and thus demand, through weekly changes in 33 spot chemical prices in the US, Europe and Asia, as assessed by ICIS).

“Peak manufacturing in China (around September) typically requires a surge in demand for the chemicals/materials inputs from July,” writes Paul

“The message from the latest update of the Volume Proxy [see the above chart] is that this boost has yet to appear, suggesting that peak manufacturing this year is, at the very least, unlikely to be particularly strong for chemicals demand.

“A weak peak manufacturing season could reflect either poor order levels from Western customers, or restricted finance available to the SME fabricators or a combination of both.”

We think that the weakness in the Volume Proxy also reflects an understanding across all of China’s manufacturing industries that painful economic reforms are well underway.

Everyone we speak to remains deeply worried about the impact of these reforms on the property sector in particular – hence, the constant references in ICIS pricing reports to “hand-to-mouth buying patterns” and persistently weak downstream demand.”

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