By John Richardson
One of the explanations we have heard for the 20% increase in China’s polyethylene (PE) imports in H1 2014 over the same period last year (see the chart below) is, as we discussed last week, a surge in demand for pipe grade high-density polyethylene (HDPE).
But, as we pointed out in the same post last week, percentage-wise, HDPE imports in H1 were only up by 11%. This compares with a 37% for low-density PE (LDPE) imports and a 24% increase in linear-low density PE (LLDPE) imports.
We have since also heard that China customs data is not detailed enough to be able determine whether there was a big increase in pipe grade imports in January-June 2014. All you get from the customs department is data on HDPE imports as a whole, whether they be pipe, film or blow moulding grades etc.
Here is another way of crunching the data, though. Since 2010 up until the end of last year, HDPE imports increased substantially, whereas LLDPE imports were more or less flat. LDPE imports increased, but only by around 25% of the rise in HDPE imports.
This explains today’s relative size of the three import markets, which you can see from the chart below.
Thus, you can draw a link between China’s heavy spending on infrastructure since 2010 and the rise in HDPE imports – and then assume that this must largely be the result of more pipe grade shipments.
But here is some more data to ponder on:
- Iran’s HDPE imports jumped by 30% in H1 2014 over H1 2013. This follows big increases in 2012 and 2013, according to Global Trade Information Service analysis of customs data.
- It now has the biggest share of all of China’s HDPE importers at 21%.
China is Iran’s customer of last resort because of sanctions.
So it seems possible that a lot of imports of HDPE from Iran have been on extended payment terms, giving local traders ample opportunity to speculate today and pay much later.
Have these import, because of these easy payment terms, found their way into real estate-linked collateral trading that we have warned about before? We think that this is a strong possibility.
And as fellow blogger Paul Hodges pointed out in his excellent post yesterday:
•How could total real demand, as opposed to apparent demand, in a large and mature market like China’s really have grown 12% in H1? (apparent demand is imports minus exports plus domestic production).
•That would have required real demand to have grown by 1.2m tonnes in just six months in an economy where growth is slowing.
• How can real demand really driven the 5m tonnes increase in imports in H1?
As the fictional detective, Sherlock Holmes, once said: “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”