China’s petchem imports soar on oil price speculation

China PE Jul09.jpg

After yesterday’s post, Edwin Pang of Credit Suisse in Hong Kong has raised an interesting question over the likely rationale for China’s massive increase in petchem imports, such as polyethylene (PE), in 2009.

As the chart shows, its monthly PE demand (production plus net imports), was very steady in 2007-8. It averaged 980kt in 2007, and 970kt in 2008. Yet in 2009, it has soared to record levels, averaging 1270 kt/month.

This makes no sense at all in terms of real demand. China’s total exports are down 26% so far this year. And it defies belief that the government’s fiscal stimulus could have caused such a massive increase in domestic demand, in so short a time.

The blog’s view is that the rise is instead due to traders’:

• Desire to bet on the rising oil price, and a global economic recovery
• Ability to access cheap credit, as part of the fiscal stimulus

This creates a serious risk that a vicious circle could develop, if the oil price continues to slip, and global demand does not recover in H2.

The blog therefore continues to worry, as it noted back in March, that “China may well end up having to dump this inventory on world markets, at whatever price they will fetch”.

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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