Home Blogs Asian Chemical Connections More Great News On China

More Great News On China

Business, China, Company Strategy, Economics, Environment, Olefins, Polyolefins, Sustainability, Technology
By John Richardson on 17-Jun-2013

Pollution over eastern China

Pollution_over_east_China.jpgSource of picture: Wikimedia


By John Richardson

IT wasn’t the kind of news that China’s polyethylene (PE) traders wanted to reflect on over the weekend.

On Friday, China’s cabinet – the State Council – announced that it had adopted 10 measures designed to improve air quality.

“Many of the measures had previously been enacted by some cities, or were the subject of national experiments that had not yet received the imprimatur of the State Council, wrote the New York Times in this article.

The measures, according to Reuters, include:

*Accelerating the installation of pollution control equipment on small, coal-fuelled refineries.

*Curbing the growth of high-energy-consuming industries like steel, cement, aluminium, and glass.

*Reducing emissions per unit of GDP in key industries by at least 30% by the end of 2017.

What the traders would instead have preferred to hear would have been initiatives to boost GDP growth, via the old and now fatally flawed economic growth model.

Anticipation has been high for several weeks now amongst the traders that bank lending will soon be boosted. This has led to more intra-trade deals and is probably the main reason, we now think, why pricing had edged up over the last three weeks (another factor has been the perception of tighter supply). For the week ending 14 June, China’s PE prices rose by a further $10-20/tonne, according to ICIS.

But PE and all other chemicals and polymer traders are whistling in the dark. The kind of news that was released on Friday, of more rather than less economic rebalancing, will be the dominant theme for the rest of this year and beyond.

As a result, more measures to restrict economically, environmentally and socially harmful new industrial investments are likely. And there will be no relaxation of tighter bank-lending conditions, or a cut in interest rates, we think, as this would only worsen China’s over-reliance on investment-led growth.

In the longer term, Friday’s announcement underlines how it is becoming much harder to win approval for new chemicals projects.

We continue to wonder what this might mean for growth of the coal-to-olefins industry. China has to balance developing the under-developed West against its ever-strengthening environmental lobby.

In general, across the whole of China’s chemicals industry, the approvals process appears to have become a lot more problematic.

“Corporate leaders say that the Chinese public has rapidly become more prone to question the wisdom of big investment projects, particularly in the chemicals industry,” wrote the New York Times in the same article that we linked to above.

” ‘This is quite fast, how this reaction has stepped up, particularly in China,’ Martin Brudermüller, the vice chairman of the German chemicals giant BASF, said in a meeting with reporters in Hong Kong on June 4.”

“With the protests, he later added, ‘China becomes a little bit more like the West.’ “

For anyone who cares about the long-term prosperity of China, this is fantastic news, indeed – and a great way to start the week.