China becomes net exporter of PVC as property bubble bursts

Economic growth

SHARE THIS STORY

China PVC Mar15China’s property bubble is collapsing, with average house prices now down 10% from their peak.  As agents Knight Frank note,

The developers have two to five years of stock to clear. So until that has been cleared, prices aren’t going up any time soon

We are also seeing more bankruptcies amongst property developers.  These began a year ago with Cement Shen’s ‘Peach Blossom Palace’ $563m bankruptcy.  Now the sums involved are rising, with the Shenzhen-based Kaisa Group debts reportedly exceeding $10bn, and major restructuring under discussion.

As always, chemical/plastic markets have provided vital early warning of the problems ahead, as the chart above confirms.  It shows China’s net imports/exports of PVC, a key product for the property industry due to its use in windows, cables, pipes and other applications (trade data from Global Trade Information Services):

  • The property bubble caused net imports to soar to 1.5 million tonnes in 2009/10, as stimulus money increased
  • Imports then began to be replaced by domestic production, which rose from 9MT in 2009 to 13MT by 2011
  • By 2013, production had risen 71% to reach 15MT – but new government policies meant demand was slowing
  • Last year production grew to 16MT – but only because exports nearly trebled from 400kt in 2013 to 1.1MT

Thus China has now become a net exporter of PVC.  This is a major change from the previous position, where it had been the world’s largest importer.

Equally important is that all Regions have seen either a slowdown in their exports to China, or a complete reversal.  N America has seen its net exports fall back to zero, despite its shale gas advantage, whilst SE Asia has seen its net exports of 240kt in 2009/10 reverse to net imports of 220kt last year.

As I suggested last summer, the impact of China’s move to adopt its ‘New Normal policies is likely to prove both long-lasting and far-reaching.  They are already creating “Losers”, both Directly and Indirectly:

LOSERS – DIRECT
1.  Anyone dependent on Chinese demand for growth

Industries currently based on exports to China such as autos, metals, energy, chemicals, luxury goods
Countries based on exports to China including Latin American exporters, Asian exporters

2.  Anything for which Chinese lending has been critical
Official and shadow banking borrowers in China’s State Owned Enterprises and private sector
Real estate, and commodities financed by the ‘collateral trade’ in China

LOSERS – INDIRECT
1.  Service sectors supported indirectly by China’s growth and lending

Areas supported by the post-2008 stimulus impact on global trade flows eg shipping, finance
Investors in financial assets eg almost 50% of S&P 500 earnings come from outside the US

2.  Markets where Chinese buyers have become major players overnight since 2008
Real estate markets around the world eg London, New York, Singapore
M&A undertaken to boost China’s overseas asset base eg energy, trophy assets

Since the summer, of course, the extent of the problem has got worse, just as I feared.  Many developers had borrowed in US$ to reduce their interest bill versus borrowing in local currency.  Now their capital repayment cost is soaring, as the US$ breaks out of its 30-year downtrend.

Companies and investors who continue to ignore the advance warning provided by PVC markets likely have an unpleasant shock ahead of them.

PREVIOUS POST

Stock markets see Winners and Losers appear

10/03/2015

China’s property bubble is collapsing, with average house prices now down ...

Learn more
NEXT POST

Oil price, China Outlook - free pH Report webinar next Tuesday

11/03/2015

China’s property bubble is collapsing, with average house prices now down ...

Learn more
More posts
Ageing Perennials set to negate central bank stimulus as recession approaches
10/03/2019

The world’s best leading indicator for the global economy is still firmly signalling recession...

Read
BASF prepares its UK supply chain for Brexit
24/02/2019

BASF has been working with Ready for Brexit (the online platform I co-founded last year) as part of ...

Read
Companies and investors have just 30 working days left to prepare for a No Deal Brexit
17/02/2019

Companies across the UK and EU27 are suddenly realising there are now just 30 working days until the...

Read
The BoE’s pre-emptive strike is not without risk
12/02/2019

The Financial Times has kindly printed my letter below, arguing that it seems the default answer to ...

Read
Flexible working is key to reversing today’s collapse in fertility rates
27/01/2019

Women in most parts of the world are not having enough children to replace our population. This is o...

Read
No Deal Brexit remains UK law unless MPs reverse their previous votes
20/01/2019

“That couldn’t happen” are probably the 3 most dangerous words in the English lang...

Read
CEOs need new business models amid downturn
14/01/2019

Many indicators are now pointing towards a global downturn in the economy, along with paradigm shif...

Read
Chart of the Year – China’s shadow banking collapse means deflation may be round the corner
16/12/2018

Last year it was Bitcoin, in 2016 it was the near-doubling in US 10-year interest rates, and in 2015...

Read

Market Intelligence

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

Learn more

Analytics

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