By John Richardson
WE conducted another of our highly unscientific surveys amongst polyethylene (PE) producers and traders last week and the message remained the same: Persistently weaker-than-expected downstream demand in China.
“Many downstream plastics processors have seen persistently weak orders for plastics finished and semi-finished goods,” added the commentary accompanying the ICIS pricing polypropylene (PP) price assessment for the week ending 18 April.
This is nothing surprising, of course, if you take a closer look at real – as opposed to headline – growth in Q1.
For example:
- According to the National Bureau of Statistics, China’s GDP growth slowed to 7.4% year-on-year in Q1 2014, compared with 7.7% year-on-year in the fourth quarter of last year, exceeding the market’s consensus expectation of 7.3%, wrote Beyondbrics in this blog post. BUT GDP growth slowed to 1.4% quarter-on-quarter from 1.7% quarter-on-quarter in the fourth quarter of 2013.
- The “Li Keqiang” index – which is based on Premier Li Keqiang’s reported comment that rail cargo volume, electricity consumption and financial credit are truer references for China’s real growth rate than official statistics – is showing a sharper downturn than the official statistics suggest. Total social financing – the widest official measure of credit extended – declined 9.3% year-on-year in the first quarter as a result of reduced trust loans and corporate bond issuance. Railway freight traffic fell 3.5% year-on-year, in line with a decline in the shipments of iron ore and coal. Electricity production was also trending downward (see the above chart). [Total social financing grew at it lowest in rate in March since 2005]
- Real estate starts fell 22% year-on-year in March after a 27% year-on-year contraction in the January-February period. Reflecting this, property investment growth slowed to 14.2% year-on-year in March from 19.3% in January-February. Mortgage lending and property sales also contracted in March on a year-on-year basis. [The problems facing the property sector are particularly acute in its second and third-tier cities]
Importantly, also, for those expecting a quick rebound, Stephen Green, Head of Research, Greater China, at Standard Chartered, told the same Beyondbrics blog post that GDP growth in the second quarter may well be weaker than in the first quarter because of multiple signs of slowing momentum. These include weaker industrial production, a lower supply of credit, reduced electricity output, lower freight traffic and falling property sales.
Misinterpretations continue. For example, Barclays wrote in a research note, which was released last week: “We think the weaker-than-expected March data release, including industrial production, property investment, imports and exports all point to continued soft demand, which warrants more supportive measures to stabilise growth.”
The first step is to get used to the new China, and the next is to start planning for the future.