By John Richardson
ELEVEN per cent apparent demand growth in polyethylene (PE) in China will not go into estimates of real demand growth at no more than 6%.
This is our concern based on the latest set of data on the market (see the above slide).
As you can see:
- Apparent demand growth (imports minus exports plus domestic production) was up by 11% on a year-on-year basis in January-July.
- Exports were up by 15% as domestic production rose by 7%.
- And yet, as we said, real underlying demand growth for the full-year 2014 is estimated at no more than 6%.
This doesn’t feel like a market that is really growing at 11% as business out there is characterised as tepid due to tighter lending conditions. This raises the concern that substantial inventory building has taken place, whether at the resin and/or plastic processing stage of the value chain.
Delve deeper into the data and you find that local production, again on a year-on-year basis, surged by around 18% in July. This suggests that the coal-based plants that came on-stream in July might be running harder than we anticipated. Watch this space for more analysis.
Of equal concern is the import data. Imports were not only up by 15% in January-July, but also held up very well in July compared with earlier this year. They totalled 764,000 tonnes in July compared with 747,000 tonnes in June 2014 and 779,000 tonnes in May 2014.
In the absence of a convincing story to the contrary, we therefore remain concerned that “collateral trading” could be a significant factor behind the data.
The risk is that as credit continues to tighten in China, a rebalancing of the market will have to take place.