Further China Evidence

By John Richardson

FURTHER evidence of weakness in the Chinese economy has emerged via the polyolefins market.

In an excellent Insight article, my ICIS colleagues Chow Bee Lin and Peh Soo Hwee say that China’s plastics processors are resisting additional price increases because their customers, the manufacturers of finished goods, are struggling. The combined retail sales values of China’s top 100 home appliance manufacturers rose by just 1.11% in January-February, on a year-on-year basis, which was 16.68 percentage points lower compared with the same period in 2011, said China’s Ministry of Industry and Information Technology.

But in early March, integrated Northeast Asian high-density polyethylene (HDPE) margins fell to their lowest level since ICIS records began. Integrated Northeast Asian low-density PE (LDPE) margins were just $91/tonne in Q1, their lowest since Q4 2000.

This suggests that producers, waving the spurious stick of tight supply in certain grades, will push for more price increases.

China’s economy is undergoing its biggest economic upheaval in a generation. This is likely to negatively impact growth for the rest of this year at least.

A further factor behind affordability for converters, and their customers, both in China and Southeast Asia, is the high price of oil.

Expensive crude is damaging economic growth as gasoline and diesel prices increase.

High food-price inflation in China is also a result of the rise in the cost of oil.

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