Scenario planning critical in forecasting 2014 China product growth

Economic growth

SHARE THIS STORY

China PE Sept13Anyone not closely studying trade data is likely to make some very expensive mistakes over the next few years.  The reason is that economics is no longer the sole driver for purchase decisions.  Instead, political and social issues can be of greater importance.

The chart above of China’s polyethylene demand highlights this complexity, using Global Trade Information Services data:

  • Total demand was flat in 2012 (green) versus 2011 (blue column)
  • But it has jumped in 2013 (red) and is 14% above 2011 levels
  • China’s own production continues to rise, and supplies 57% of total demand, even though it is high-cost
  • Middle East imports supply 22% of demand, due to cost and the ‘oil for markets strategic corridor’
  • High-cost NEA is 9% of demand, with Taiwan up 34% as political tensions ease with China
  • Low-cost SEA is 8% of demand, with Thai volumes flat as new Singapore capacity arrives
  • NAFTA is just 3% of demand: US volumes are down 16% despite the shale gas cost advantage

The trade data also provide important clues as to the sustainability of current demand levels.

  • The key driver has been HDPE growth, up 18% to 3.1MT versus 2012.  Iran and Saudi Arabia have been the big winners, each up over 30%
  • LDPE is up 8% to 1.1Mt with S Korea, Saudi and Qatar big winners
  • LLDPE/EVA is up just 2% at 1.7MT, with Singapore gaining share as its new capacity comes online
  • Equally, the sudden surge in import volume suggests inventories were also built as crude oil prices rose

In turn, HDPE’s strength suggests the prime driver for the demand increase has been the revival in construction activity.  This is closely allied to the shadow lending boom, which seems unlikely to continue into 2014.  Also worth watching is LDPE’s gain, which goes counter to global trends.  Whilst the slowdown in LLDPE volumes may indicate consumer concerns over food safety are easing.

Anyone now finalising budgets for 2014 therefore has some very difficult judgements to make.  Will the November economic plenum really tackle the shadow banking bubble?  If it does, construction could easily become a disaster area for HDPE sales.

Equally difficult to forecast is whether LDPE volumes will continue their recent revival and, if so, will this continue to be at LLDPE’s expense?

In turn, how might producers in the different geographies react to major changes in market demand?

Companies would be extremely short-sighted if they choose to ignore these far-reaching changes because they raise uncomfortable issues around the viability of current strategies.

Plus of course, it is no longer true that PE is primarily used in food packaging and hence immune from economic downturn.  Industrial packaging (stretch film, stretch hood, protective film, liners, rotomolding etc) is now nearly as large as food packaging and clearly linked to economic activity.  In addition, uncertain economic times slow growth rates in food packaging, as companies cut back on the capital spending needed to convert glass bottles and cans.

It all makes the blog very nostalgic for the SuperCycle years, when all one needed to forecast sales was a spread-sheet and the ability to decide on a ratio to an IMF forecast of GDP growth.  Today, however, detailed Scenario planning is clearly essential, given the range of different outcomes that are possible.

PREVIOUS POST

Investors decide central banks may not know what they are doing

30/09/2013

The blog was speaking last week at the major Euromoney investor conference on bo...

Learn more
NEXT POST

Income and age will determine American's future housing needs

02/10/2013

Affordability is the key factor in today’s markets.  And nowhere is this ...

Learn more
More posts
Housing markets face long-term downturn as central banks abandon stimulus
05/09/2021

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulu...

Read
Businesses set for transformation as supply chain chaos combines with Net Zero targets
15/08/2021

‘Business as usual’ seems a most unlikely outcome as we look forward over the next 6 months....

Read
Auto industry provides a model for the transition to Net Zero
25/07/2021

Flooding in China and Europe, record temperatures in the USA, wild fires – all these are signs...

Read
Europe’s Green Deal will transform its economy, as floods confirm urgency of tackling climate change
18/07/2021

The floods raging in Germany and Benelux highlight the scale of the Climate Change challenge ahead....

Read
Governments continue to fail the Covid challenge
04/07/2021

Governments have failed to properly protect their populations from the pandemic. Some have actively ...

Read
The blog’s 14th birthday – and the New Normal world it predicted has arrived
27/06/2021

The blog has now been running for 14 years since the first post was written from Thailand at the end...

Read
ACS Chemistry & the Economy webinar on Thursday
02/06/2021

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Read
225 years ago today. The first ever vaccination – against smallpox, the great killer of the time
14/05/2021

The pandemic has reminded us of the critical role played by vaccination in our lives. Its impact beg...

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