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Restocking Price Recoveries Will Be Deceptive

Business, China, Company Strategy, Economics, US

By John Richardson

WE will see, as we did in the second half of last year, chemical price recoveries on restocking as inventories are at very-low levels down many of the value chains. It will only take slight improvements in confidence for markets to suddenly bounce-back.

Further monetary easing China is likely to buoy confidence post-Chinese New Year. A recent poll of economist by Reuters predicted that bank-reserve requirements would be cut by a further 200 basis points.

But the Chinese government risks reigniting inflation if it relaxes lending conditions by too much and so the approach to monetary easing is likely to be cautious, especially given that this is a year of leadership transition in China.

China’s dependence on Europe, and on the general export environment, for growth is another major concern.

The amount of new sovereign bond sales that need to take place in Europe this year is just one of the factors that could cause a severe escalation of the Eurozone crisis. The moderate success of recent bond sales was the result of thin trading volumes during the recent end of the Christmas and New Year holiday seasons.

US consumers are also hardly in a position to drive global growth, as this article from the New York Times indicates.

“As the weak US economy trudges on, consumers are leaning on credit cards to pay for holiday gifts, many bought at discounts. They are dipping into savings to cover higher costs of gasoline, food and rent.

“They are substituting overseas for domestic travel, keeping their washing machines and refrigerators longer.”

The reasons for the sluggishness of consumer spending in the US were flat incomes, modest job growth and the fact that more than 40 percent of jobs created in the past two years had been in lower-paying sectors, such as retail and hospitality, added the NYT.

And so this will be another disappointing year for the global chemicals industry.

High oil prices – which could go higher on geopolitical issues – and weak demand for chemicals, leading to a squeeze on margins, is another problem. We will look at this in more detail next week.