China: Do You Really Know Where Your Product Ends Up?

China, Company Strategy, Economics, Fibre Intermediates, Polyolefins


By John Richardson

AS a senior Chinese official announces that investigations into metals trading fraud have been extended from 13 to 24 provinces, and that $10bn worth of fraud could be involved, it stands to reason that these complex webs of transactions do not just include metals.

And so you need to ask  yourself this question: Hand on heart, do you have complete knowledge of where all your chemicals and polymers volumes end  up when you export to China?

Or is it more a case of “sell and hope” that all of your volumes swiftly and seamlessly end up in finished goods sold to the final consumer?

“We can only deal with the big first-level distributors in China because we do not have enough people on the ground – the cost would be too great,” said polyolefins industry source, in answering our two questions.

“Once our resin leaves these big distributors, we have no real idea where some of our material ends up.”

This has always been the case because of the geographic size and complexity of China’s  chemicals market.

But in the past it didn’t really matter, as economic growth was going in one clear direction – constantly higher. This meant that inventory overhangs were never that big and when they occurred, very quickly disappeared.

Throughout this year, though, we have been warning about the mismatch in “real” demand growth estimates for polyethylene (PE) and the local production and import numbers.

Something feels as if it is wrong – and this matters much more today because of all the uncertainties around the future direction of economic growth.

Even if direct fraud is not involved, it looks probable that large volumes of PE have been used as collateral to raise money for other purposes.

In late August, we heard of  two plastic processors in China who were in financial difficulties because they used PE as collateral for speculation that went wrong.

And two weeks ago we heard of a police raid on a polyester producer in China, during which it was claimed that 100,000 tonnes of the monoethylene glycol (MEG) it had in storage belonged to someone else.

This fits with reports we picked in early August of MEG being used as another speculative tool.

Ever more complex webs of commodities fraud are being spun at the moment, as chemicals cargoes, and the money raised through letters of credit, pass from one company to another and back again.

These complex webs are, we think, all about trying to make money out of the shadow banking system, where potential returns have skyrocketed thanks to financing shortages amongst real-estate developers.

But so have the potential risks.

Here is warning: There could be another police raid coming to a distributor/chemicals trader near you.


Diesel Demand In China To Fall As Banks Hoard Cash....



Learn more

China Heads For Negative Real GDP By As Early As Q4


By John Richardson “BY NOW I think most folks are aware of and agree with ...

Learn more
More posts
Petrochemical feedstock purchasing managers: What to think about and what do next

By John Richardson ALL THE old assumptions about how oil, feedstock and petrochemicals markets work ...

Vital work to maintain petrochemicals supply for essential services must continue

By John Richardson INDUSTRY associations around the world are lobbying governments about the importa...

Polyethylene: How to plan sensibly as we face threat of new Global Depression

By John Richardson I SINCERELY want to help you guys. That’s what I am here for. To this end, here...

Coronavirus may take as much as two years to be brought under control

By John Richardson The only honest answer is that none of us know how events will turn out because o...

Coronavirus: The new ten-point guide for the petrochemicals industry

By John Richardson EARLIER THIS month I provided you with a ten-point guide for the impact of corona...

Container freight shortages will lead to regional petrochemicals trade and supply shortages

By John Richardson THIS excellent chart highlights the lingering effects of the coronavirus outbreak...

European polyethylene and coronavirus: Panic buying versus the real demand outlook

By John Richardson NOW that the epicentre of the virus has moved to Europe, we need to think through...

Big declines in Chinese polyethylene imports, a global recession and a financial crisis

By John Richardson YOU MIGHT be hoping that sanity will be restored after the “most expensive spee...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more