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China’s PE demand continues to weaken

Economic growth
By Paul Hodges on 26-Jun-2012

China PE Jun12.pngChina’s polyethylene (PE) demand continues to highlight the slowdown underway in the wider economy. As the chart shows for the January- May period, based on data from Global Trade Information Services:

• Overall demand (red column) was down 5% versus 2010 (blue)
• China’s production continued to increase, up 1%
• Imports were down 9%, and exports up 95% (from a low base)

Thus it also looks as though PE demand in 2012 will be well below GDP levels for the 2nd year running, as it was up just 1.3% in 2011.

Equally, the data continues to provide worrying evidence of the decline in demand for NAFTA imports, despite the increasing shale gas advantage. They were down 58% from 2010 levels.

The reason is that China aligns its imports with overall strategic interests, rather than economics. It has some of the highest cost production in the world, but operating the plants keeps people employed. The social stability that this provides is more important to the ruling communist party than any potential cost saving.

The only exceptions are with the Middle East, where China’s need for energy means its imports from there are up 36%. Whilst SEA imports were up 12%, as it also values the export markets provided by the free trade agreement.

This is the world of the transition to the New Normal.