China's stimulus programmes have been a major support for the global chemical industry over the past 2 years. In polyethylene (PE), for example, its total demand grew an astonishing 53% between 2008-10, from 11.7MT to 17.9MT.
But now, China's rapid demand growth seems to have slowed. According to Thomson Reuters, China's PE consumption actually fell 1.5% in Q1 versus 2010. This has potentially major implications for global H2 chemical demand.
Also, as the chart shows, PE imports (purple column) were down 14% in January-April versus 2010 (green), based on Global Trade Information Services (GTIS) data. Even more surprisingly, China's PE exports doubled to 168KT. And Sinopec, China's largest producer, is reportedly cutting production for the first time in its history.
The detail of the import data shows the pain has not been evenly spread:
• NAFTA was worst impacted: sales were 198KT versus 522KT in 2010
• NEA was down to 550KT from 662KT
• SEA managed a small increase to 468KT from 424KT
• But the Middle East saw its volumes jump from 871KT to 1MT
The ME-China 'strategic corridor', whereby the ME seeks markets and China seeks energy supplies, is clearly continuing to grow in importance.
Sinopec's cutbacks may be the most significant in terms of their implication for China's economic outlook:
• Its operating rate on ethylene has averaged 101.7% since 2000
• It has never cut back because of low margins
This is because Sinopec is 76% government-owned. It does not focus on profit, and its average EBIT (Earnings Before Interest and Taxes) in chemicals has been just 3.7% since 2000. Instead, it operates as a utility, providing reliable supplies of raw materials to China's factories, and helping to maintain high levels of employment.
Its reported cutbacks, are therefore unusual. They may well be due to lack of demand, combined with the need to produce more diesel to power local generators, as electricity shortages increase - (see earlier post). The fall in imports, and the rise in exports, seems to support this conclusion.
PE markets may therefore be telling us something very important indeed about the current state of China's economy.