China’s Q3 economic slowdown clouds Asian petrochemicals market outlook

SINGAPORE (ICIS)–China’s economic growth slowed to 4.9% year on year in the third quarter, clouding the outlook for Asia’s petrochemicals markets that are already contending with poor margins amid tepid downstream demand and worries over escalating tensions in the Middle East.

The third-quarter GDP figure marks a slowdown from the 6.3% year-on-year expansion in the second quarter of this year and lower than the growth target of around 5% hat Beijing has set for 2023.

On a quarterly basis, the country’s third-quarter GDP expanded by 1.3%, improving from the 0.8% growth in the second quarter.

China’s slowdown has continued to weigh on Asian petrochemicals market, with the spot ICIS Petrochemical Index (IPEX) for Asia down 1.7% week on week in the week to 13 October.

The weekly spot index was dragged lower by tepid demand following the Golden Week holiday in China and hit by weaker paraxylene (PX), styrene and polyethylene (PE) values.

Separately, China’s domestic bisphenol A (BPA) margins have hit their lowest point this year. With the average import price going from an almost 10-month high on 15 September to more than a one-month low on 13 October.

In the ethylene market, a slow recovery in northeast Asia’s demand for the key feedstock is expected within the short term, as key standalone-based downstream products (such as MEG and SM) remain negative, according to the latest ICIS forecast.

CHINA’S MEASURES TO BOOST ECONOMY – WILL THEY LAST?
China implemented multiple interest rate reductions in the third quarter to encourage borrowing among enterprises and consumers, aiming to counteract a tepid economic rebound from the COVID-19 crisis.

Initiatives, including lowering down-payment requirements for new homes, were implemented to stimulate the dormant real estate market after several developers faced debt defaults.

Recent data from China is pointing to stablisation in the economy, with the official purchasing managers’ index (PMI) returning to expansion for the first time in six months.

The official non-manufacturing PMI also ticked up after peaking in March.

Pent-up demand has led to a travel boom and robust consumption during the extended Golden Week holiday at the start of October.

On the trade front, China’s exports downturn improved in September, falling by 6.2% year on year versus the 8.8% contraction in August.

Despite a relatively smaller contraction, China’s exports still face strong headwinds, especially in comparison with recent improvements in other major Asian exporting economies, including South Korea, Japan’s Nomura Global Markets Research said in a note.

“We remain cautious and believe stabilization may be short-lived, due to tapering pent-up demand, the ongoing downward spiral in the property sector (especially in low-tier cities), weak exports and low confidence in the private sector,” Nomura said.

“Recent signs of stabilization may also slow Beijing’s efforts to roll out the measures necessary to truly stabilize the economy,” it said.

The International Monetary Fund in its regional report for Asia on 13 October cut its growth forecast for China by 0.2 percentage point to 5.0% this year, while for 2024 its projection was trimmed by 0.3 percentage point to 4.2% amid the country’s deepening property-sector slump.

The Chinese economy expanded by 3.0% year on year in 2022.

“Confidence in China’s economy remains low, and debt and property issues continue to weigh on China’s economy at a time when global economic growth has slowed,” said Kevin Swift, a senior economist at ICIS.

“China’s GDP growth will likely remain below 5% for several years,” he added.

With additional reporting by Seng Li Peng

Thumbnail photo: At Qingdao port in China (Source: Costfoto/NurPhoto/Shutterstock)

Focus article by Nurluqman Suratman