China’s economy hits the ‘pause’ button

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading, Leverage

China lend Mar11.pngThe blog’s recent Asian visit revealed considerable anxiety about the state of demand in China. As its blogging colleague, John Richardson, has also described, the country’s lending cutbacks may finally be taking effect.

New official figures for lending and electricity consumption support this view. These are two of the only 3 figures trusted by likely future premier Li Keqiang. He described GDP numbers as being for “guidance” only.

And as the chart shows, both lending (red column) and electricity consumption (blue line) were down in February. Of course, part of this was due to Lunar New Year. But even so, total lending in Jan/Feb was down 24% versus 2010, a quite remarkable fall. Electricity growth also seemed to slow, up ‘only’ 11% compared to 2010’s 28% rise.

Last week, further signs appeared that a ‘pause’ may now be underway:

• ICIS’s Linda Naylor, one of the most trusted observers on the polymers scene, reported offers of Chinese polyethylene (PE) into Europe at €100/t ($143/t) below current prices.
• Earlier, ICIS’s Fanny Zhang in Shanghai had reported ethylene sales underway from the Fujian JV, due to “high inventories“.

Polyethylene is THE leading indicator for chemical demand in China. Not only is it the world’s major polymer. But it has also been the focus of the massive speculation on China’s Dalian futures exchange.

Equally, China’s supply/demand balances mean that in normal times, it should always be an importer of both ethylene and polyethylene. In 2010, it was the world’s largest PE importer at 4.9 million tonnes, according to Global Trade Information Services data.

It is probably still too early to be sure that today’s ‘pause’ will continue. But if the blog was still running a major business, it would certainly be updating its ideas on how to mitigate a Downside Scenario, just in case.

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