China petrochemicals get near-term boost from property stimulus measures
SINGAPORE (ICIS)–Sentiment in China’s petrochemical markets has improved in September on the back of fresh measures introduced to revive the country’s embattled property sector, but sustaining actual gains may be difficult as economic uncertainties remain high.
- China petrochemical futures surge from end-August
- New policy boosts demand for property upgrades; homes sales up in early Sept
- Demand boost may only last up to October
In the futures markets, Chinese petrochemicals logged gains in September, led by styrene monomer (SM).
|China futures markets||Closing prices on 14 Sept (CNY/tonne)||Change from 31 Aug|
|Linear low density polyethylene (LLDPE)||8,349||0.3%|
|Polyvinyl chloride (PVC)||6,395||1.7%|
|Monoethylene glycol (MEG)||4,346||5.1%|
|Styrene monomer (SM)||9,817||15.8%|
|Purified terephthalic acid (PTA)||6,354||3.8%|
Sources: Dalian Commodity Exchange, Zhengzhou Commodity Exchange
The market sentiment turned positive and buying interests have improved following the property incentives, driving up prices, ICIS senior analyst Joey Zhou said.
Prices of most petrochemicals, including polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) are expected to strengthen this month due to the property stimulus as well as strong feedstock costs, according to ICIS forecast.
PROPERTY MEASURES AT
More households are now eligible to enjoy much lower downpayments and interest rates on mortgages as the definition of “first-time homebuyers” were relaxed in late August.
This is considered as the biggest stimulus introduced by the government for the sector since 2017.
First-time buyers enjoy lower downpayment of 20-30% when buying a property, compared with 40-80% for second-time buyers.
Such easing is expected to benefit 10-20% of second-time or third-time buyers looking to upgrade homes, and thereby, result in increased overall home sales in the coming months by 2% on a year-on-year basis, according to investment bank China International Capital Corp (CICC).
For its part, the People’s Bank of China (PBoC) has asked commercial banks to cut interest rates on existing mortgages, and the rates will be lowered by an average of 0.8 basis points. Starting 25 September, homeowners can re-negotiate with banks on mortgage terms.
This adjustment will significantly reduce burdens of around 40m households which have an estimated total mortgage of CNY25tr ($3.4tr), analysts said.
Potentially, this will lead to an annual savings of some CNY200bn, which is equivalent to 0.45% of the country’s total retail sales in 2022. The saved mortgage payments can then be rechanneled to boost consumption, according to analysts.
The policy was met with a sharp improvement in home sales in major cities like Shanghai.
In the week ended 3 September, sales of new homes in China’s financial capital more than doubled from the previous week, according to data from Centaline Group, one of the top property agencies in China.
For the month of September, Shanghai’s total exiting (or second-hand) home sales are projected exceed 15,000 units, up from 13,700 in August and 127,000 in July, according to local property agency Lianjia.
OUTLOOK NOT TOO ROSY
The demand spurt, however, may be restricted to September and October – which are the traditional golden months for the Chinese house market, according to CICC.
While the house market has seen an immediate short-term confidence, there is concern that the momentum may lose steam in long run as the overall Chinese economy is still struggling with headwinds.
“China face challenges such as weakening exports, high debt, rising youth unemployment and sluggish consumer spending,” ICIS senior economist Keven Swift said.
In Beijing, sales of existing homes in the weekend of 9-10 September plunged 35% from the preceding weekend to about 1,700 units, while new home sales showed a similar trend, according to data from Centaline Group.
This is in sharp contrast with the home sales improvement in Shanghai.
Only safe job and good salary can support consumer spendings in long time, said Zhang Junfeng, chief analyst at Shenzhen-based brokerage China Merchant Securities.
He said the property slump is impossible to change overnight, with significant improvement only likely in the second quarter of 2024.
Focus article by Fanny Zhang
Infogram by Nurluqman Suratman
($1 = CNY7.27)
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