Asia Chemicals Will Need To Cut Operating Rates

Business, China, Company Strategy, Economics


By John Richardson

THE above chart, from Paul Satchell’s latest Volume Proxy*, indicates that the downturn in Asian chemicals markets has become more entrenched.

“The continued decline in the Asia line lends further support to our earlier assertion that the peak manufacturing season in China is likely to disappoint,” writes Satchell, a UK-based chemicals analyst with investment and investor services firm, Cannacord Genuity, in his 4 September Volume Proxy.

“This view is also reflected in the downbeat market intelligence from the region. One interpretation of the soft demand for chemicals in China is that demand from Western customers is weak. However, restricted access to financing is also likely to be inhibiting at least the important  small and medium-sized enterprise segment of chemicals purchasers in China”.

We worry that this is only just the beginning of a very difficult few months as it dawns on chemicals and other commodity markets that China has, indeed, firmly changed course.

Interestingly, only a few months ago, the talk in iron ore markets was of resilient Chinese demand growth being sufficient to absorb new capacities.

But now, for the first time in a decade, there is talk of cutting back on production.

We suspect that operating rating cuts across the chemicals industry in Asia will also be necessary.

*The Volume Proxy gauges volumes, and thus demand, through weekly changes in 33 spot chemical prices in the US, Europe and Asia, as assessed by ICIS.


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