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PE demand decline highlights China risks

Consumer demand

China PE May12.pngChina’s slowdown is continuing to gather pace.

Polyethylene (PE) demand has been a very reliable leading indicator for the economy. Its 50% growth between 2008-10 highlighted the overheating economy, as the government stoked a credit bubble, even whilst official GDP growth reports were reassuringly low.

GDP numbers, however are merely targets. Likely future premier Li Keqiang described them as “man-made and therefore unreliable” in 2007. But the message has not been widely understood by planners or analysts.

Instead, companies need to refocus their planning on the insights to be gained from the use of trade statistics. These are currently one of the most woefully underused tools for understanding today’s market.

The data they provide is better quality than ever before and more timely. On PE, the combination of trade figures from GTIS with China’s own production data has been telling a very consistent story.

As the above chart shows, PE demand is continuing to decline. It compares January – April 2012 (red column) with the same period in 2011 (green) and 2010 (blue):

• Overall demand is down 6% versus 2010
• Imports are down 12%, as domestic production continues to rise
• Middle East and SEA imports continue to have advantaged status
• NEA, NAFTA and EU imports are suffering major declines

Other key data tell the same story of a major slowdown underway. Bloomberg reports bank lending is expected to miss targets yet again in May. Whilst mining imports are also slow.

Of course, the government will still report Q2 GDP in line with its target of 7.5%. But the trade figures are painting a much more reliable picture of what is really happening to the economy.