China was understandably a key item on most people’s minds at this week’s annual EPCA (European Petrochemical Association) meeting in Berlin. It has been the motor of global chemical demand growth over the past 3 years.
The blog’s discussions identified a number of signs that this support may be disappearing:
• Many companies worry about the level of inventories being held down the value chain. Some fear these could be up to twice normal levels.
• Credit has become much tighter, as the authorities try to reduce inflation. Interest rates of 2%-3% a month seem to be quite common.
• Considerable inventory is controlled by property developers, who are using it to replace bank credit lines that have been cut off.
• The risk of bankruptcies is seen to be rising. At today’s prices, this represents considerable credit risk for petchem suppliers.
Thus there are good reasons for companies to take a more cautious approach. In turn, of course, this further reduces potential growth levels.
At the same time, the latest data confirms major changes are underway in China’s trade patterns. The chart above shows net polyethylene imports – eg imports less exports – using GTIS data for January-August:
• China’s total net imports have fallen 11% in 2011 versus 2009
• Meanwhile, its net imports from the Middle East have risen 60%
• Its net imports from SEA have risen 17%
• But net imports from NEA have fallen 40%
• Net imports from NAFTA have fallen 51%
This trade data is key to understanding future demand patterns.
It shows China is refocusing its imports on strategic oil partners in the ME, and within the ASEAN Free Trade area. At the same time, it continues to increase its own production ahead of demand growth.
In turn, of course, this strategy intensifies competition in other regions, as traditional exporters to China are forced to seek new markets. This competition can only intensify, if fears of a China slowdown prove real.