Home Blogs Asian Chemical Connections Historic polyolefin market collapse

Historic polyolefin market collapse

Business, China, Company Strategy, Economics, Olefins, Polyolefins
By John Richardson on 23-Sep-2008
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For the first time, quite probably, since the Chinese economy opened some producers are predicting that polyolefin demand growth could be flat or even negative this year. In the case of PE, reports are emerging of sales declines above 20% over the last two months.

This compares with 8 per cent growth for PP and 5-6% growth for PE in 2007.

This blog focuses on the long term and there is a long term danger here.

The depth of the economic problems in the West is the main cause of the fall in polyolefin volumes due to the the collapse of the re-export of finished goods.

Let’s hope this only a temporary problem and the global recovery arrives fairly quickly. But it seems likely that we haven’t even reached the bottom of the current crisis and there is a danger of a deep global recession, or even depression, lasting several years.

The fact that Chinese growth has taken such an historic blow from the collapse of finished-goods exports exposes the corporate flannel about tremendous domestic market growth as being exactly that – corporate flannel of the worst kind designed to hoodwink dumb investors and lazy journalists.

In the short term, as described, the re-export sector remains hugely important for the Chinese economy.

There is also a shift by the government away from an export and fixed asset investment-led growth model. This means a lot less growth from the re-export sector over the long term for anyone shipping basic commmodity chemicals to China.

Volatility in crude is a problem that might last for a while, given the fundamentals of tight supply and the potential for the re-emergence of strong demand growth.

In the case of polyolefins, this is leading to sudden surges in resin buying when converters think crude will continue to rise and running down of inventories when the reverse occurs.

This might, to some extent, have masked the depth of fundamental weaknesses in the market up until mid-June. If you recall, oil was on a bull run until then.

The last few days have, of course, seen crude enter one of its most volatile periods in history – making it even harder to read the direction of oil and therefore naphtha, olefins and polyolefins pricing.

Who’d want to be a purchasing manager for a plastic processing company in this current climate?