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Was The Chinaplas Optimism Justified?

Business, China, Economics, India, Polyolefins, Projects
By John Richardson on 02-May-2010

Too good to be true?,.,,,,,

Chinaplaspic.jpgSource of picture: http://www.arico.tw/en/index.php



By John Richardson

I VISITED the Chinaplas plastics exhibition in Shanghai late last month and was greeted with a wall of unremitting optimism.

Here are a few samples of the incredibly bullish comments from senior industry executives (a fuller version of what was said during the event – which attracted around 75,000 visitors over just four days – will appear in next week’s ICIS Chemical Business).

“Just before I put my head on the pillow the other night, it occurred to me that China is now entering a second phase of development in its plastics processing sector,” said the vice-president of a major Asian polyolefin producer.

“At first they built conversion capacity on the edges of cities and towns because they wanted to take advantage of cheap loans and to acquire land that would appreciate in value.

“As a result, they often didn’t care that much about the quality of the finished products. So in the case of biaxially oriented polypropylene (BOPP) finished-film producers, they would often run cheaper yarn grade rather actual BOPP film grade resin through state-of-the-art machinery.

“But now many of these processors are cashing in on land values and moving to the countryside, where they are placing much more focus on the quality and the range of what they actually make.”


.And an Asia-Pacific commercial manager with a US plastics major added: “Even in the depths of any economic crisis, no matter how poor you become you are not going to stop wrapping your food in plastic or using synthetic polymer-made diapers.

” Ten years ago the middle classes in India earned an average of $300 a year which meant that they couldn’t afford washing machines and refrigerators, never mind autos, added one of his colleagues.

“Now middle-class incomes have risen to $2,000 a year and this has put the 200m who make up the Indian middle classes over the threshold into the category of developing-world consumers of the low-end finished goods that we take for granted in the West,” he said.

“Chinese growth remains strong and will be further boosted by the Expo 2010 in Shanghai.”

He added: “China’s government will get it right. They haven’t made any major errors since the Cultural Revolution and if they do make a mistake with the economy, they are capable – unlike in a democracy – of adjusting policies extremely quickly.”

Even the prospects of imminent oversupply in commodity polyolefins didn’t seem to worry almost universally-upbeat senior industry executives.

“My feeling is that this trough will not be as deep as previous ones because of Asian demand,” said another vice-president, this time with a leading US and European producer.

“There has been too much writing and excitement about overcapacity, but it is not as extreme as people say because of Asian demand, projects coming on-stream more slowly than expected and capacity rationalisation in the West.

“We see margin depression over the next few years, but we don’t believe it will be as bad as 2002-03.

“What we’ve seen before during periods of oversupply in Asia is higher volumes of resin consumption. We are seeing this right now with a lot more processing capacity being added in Malaysia, Indonesia and Thailand,” continued the commercial manager with the US plastics major.

“The converters are very smart. They will buy more resin and push for application development when their raw materials are cheap. In previous periods of oversupply, polyethylene (PE) demand has grown at 1.2-1.4 times GDP (gross domestic product) rather than the usual flat rate.

“This will push Asia-Pacific consumption to a new level, after which there is no going back.”

The enthusiasm, the optimism, was almost overwhelming in its intensity and relentless consistency.

But was this partly because they were spinning a good story to a journalist with private discussions a little more tempered?

Or is there really no going back for Asia and for emerging markets in general, and should cynics and sceptics except that they were wrong?