China PE Demand Down 3 Percent

Business, China, Company Strategy, Economics, Europe, Polyolefins, US

China%20PE%20Jul12.png

 By John Richardson

GROUND level economic conditions in China are still a lot weaker than headline GDP (gross domestic product) numbers suggest.

For example, a polyvinyl chloride (PVC) sales and marketing executive said: “PVC demand growth is going to be in minus territory this year. Carbide-based producers are likely to continue to have to run their plants at operating rates below 60 percent.”

And in polyethylene (PE), as the chart above illustrates, demand in the first half of this year was down 1 percent (red column) versus H1 2011 (green) and down 3 percent versus H1 2010 (blue).

Imports were also down 9 percent and exports up 82 percent versus 2010.

This is from data provided by Global Trade Information Services.

A Zhejiang provincial government report, which fellow blogger Paul Hodges referred to in this post yesterday, neatly summarised some of the ground level economic problems we have been discussing all year.

“Weak demand, rising labour costs and strained liquidity are ravaging enterprises in East China’s Zhejiang province, a traditional stronghold of China’s entrepreneurship,” said the report.

Synthetic resin demand is no longer expanding in line with that of overall GDP because:

*Small and medium-sized companies, as the Zhejiang report underlines, continue to struggle with lack of credit, have been badly hurt by the slowdown in exports and are more exposed to higher labour costs than the state-owned enterprises. The SMEs make up the bulk of China’s polymer and chemicals buyers.

*Inventories of synthetic resins remain high because of the economic distortions left over from the 2009-2010 economic stimulus.

Commodity markets in general, including chemicals, may well take cheer from a recovery in GDP growth during the second half of this year.

But the chemicals sector would need to ask itself two questions when assessing the value of a rebound in growth, which are:

1.) How much of the new stimulus has found its way through to the SMEs, given that a lot of the stimulus will go to big infrastructure projects executed by the larger companies?

2.) Will this type of investment-led growth be good for the economy in the longer term? China already faces major bad-debt problems and needs to wean itself off investments as the main driver of growth.

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