PE demand decline highlights China risks

China PE May12.pngChina’s slowdown is continuing to gather pace.

Polyethylene (PE) demand has been a very reliable leading indicator for the economy. Its 50% growth between 2008-10 highlighted the overheating economy, as the government stoked a credit bubble, even whilst official GDP growth reports were reassuringly low.

GDP numbers, however are merely targets. Likely future premier Li Keqiang described them as “man-made and therefore unreliable” in 2007. But the message has not been widely understood by planners or analysts.

Instead, companies need to refocus their planning on the insights to be gained from the use of trade statistics. These are currently one of the most woefully underused tools for understanding today’s market.

The data they provide is better quality than ever before and more timely. On PE, the combination of trade figures from GTIS with China’s own production data has been telling a very consistent story.

As the above chart shows, PE demand is continuing to decline. It compares January – April 2012 (red column) with the same period in 2011 (green) and 2010 (blue):

• Overall demand is down 6% versus 2010
• Imports are down 12%, as domestic production continues to rise
• Middle East and SEA imports continue to have advantaged status
• NEA, NAFTA and EU imports are suffering major declines

Other key data tell the same story of a major slowdown underway. Bloomberg reports bank lending is expected to miss targets yet again in May. Whilst mining imports are also slow.

Of course, the government will still report Q2 GDP in line with its target of 7.5%. But the trade figures are painting a much more reliable picture of what is really happening to the economy.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. 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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