Every silver lining has a cloud

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I am currently lucky enough to be visiting Asia every month. This also gives me a chance to ‘check the temperature’ as regards people’s outlook on the economy. And I think its fair to say that the mood has moved from optimism to caution. Good news is tempered by its potential downside. Nothing typifies this better than reaction to Wednesday’s news that China has now become the world’s second largest car market, as sales rose 20% in Q1 to reach 1.85 million. This is a particularly impressive gain, after the major snowstorms in January and, of course, will have provided support for chemical sales.

The downside to this news came on Friday, when China released news that its trade surplus fell 11% in Q1. Whilst this was partly due to January’s storms, officials said that ‘weakening outside demand caused by the unfolding US subprime crisis’ and the rapid appreciation of the renminbi were also responsible.

In addition, crude oil imports rose above 4mbd for the first time ever in March, 25% higher than last year. With oil product prices frozen since January, and 163 million cars now on the roads, demand is unaffected by higher oil prices – meaning that chemical feedstock prices are more likely to continue rising.

There is also growing concern over the likely progress of China’s economy after the Olympics. The government has been seeking to slow growth via major interest rate rises, to try and combat current high inflation. But now the Asian Wall Street Journal is reporting that this is causing a serious downturn in China’s property markets. It says ‘property prices are showing signs of weakness in many of the country’s key markets, and capital markets have all but seized up for these – and other – offerings’.

People are also remembering that earlier Asian Olympic Games in Tokyo (1964) and Seoul (1988) sparked major growth in both the Japanese and Korean economies prior to the event. But afterwards there was a pause, as the pre-Olympics pace of change simply couldn’t be sustained over the longer-term

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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