SINGAPORE (ICIS)–China kicked off a major meeting in Beijing on Monday to map out the economic future of the world’s second-biggest economy, whose recovery is being hindered by a property slump now on its third year, and a manufacturing overcapacity. Q2 GDP growth slows to 4.7% Fiscal reforms, US/EU protectionism, private sector promotion to be discussed Government may push for more affordable housing measures The Communist Party of China (CPC) is holding a third plenary session or plenum since the members were elected in October 2022, in the Chinese capital from 15-18 July. The pivotal meeting began just as China reported a slowdown in annualized GDP growth in the second quarter at 4.7% from a 5.3% pace in the January-March 2024. The world awaits policy announcements from the closed-door meeting, in which Chinese leaders are expected to discuss fiscal and tax reforms, strategies to counter protectionism from the US and EU, promotion of domestic private sector, and address the country’s ailing real estate market. The third plenum typically sets China’s economic agenda over the medium term, with Xi Jinping serving his third term as Chinese president. The CPC’s Central Committee typically holds seven plenary sessions during its five-year term, with the third plenum typically garnering significant international interest. China is currently on its 14th Five-Year Plan, which covers 2021 to 2025. “The third plenum is in the middle of the five-year plan of the Chinese Communist Party and therefore is unlikely to witness major policies,” Alex Ng, founder and head of research at Hong Kong-based Fortress Hill Advisors, said in a note for investment research and analysis firm Smartkarma. “Rather, there will be fine-tuning of existing policy direction and some sector-specific measures.” The third plenum was delayed from late-2023 as Chinese leaders have had to grapple with a multitude of domestic and external headwinds. First-quarter annualized economic growth was robust at 5.3%, driven by strong manufacturing and industrial output, despite patchy consumer spending. However, second-quarter GDP growth has slowed to 4.7% as consumption weakened, official data showed on Monday. China’s government has already taken measures to stabilize growth further this year. In March, the country’s State Council issued an action plan to promote large-scale equipment renewals and trade-ins of consumer goods. This was followed by the latest property rescue package in mid-May, comprising of both supply and demand side measures. KEY AREAS TO WATCH A resolution will be presented at third plenum focused on “comprehensively deepening reform and advancing Chinese modernization”, aiming to establish a “high-level socialist market economy” by 2035, according to an official CPC document. “This indicates that the focus of the reforms will be on promoting long-term high quality economic development that centers on innovation, technology, green transition and the people,” said Ho Woei Chen, economist at Singapore-based UOB Global Economics & Markets Research. “The youth unemployment, ageing population, hukou system and promotion of domestic consumption may also come into the picture.” FISCAL AND TAX REFORMWith local government’s revenue from land sales drying up and a high debt overhang, the central government will need to transfer more resources to the local governments and broaden their income sources, Ho said. This would help to sustain the economic recovery as the local governments oversee stimulating their own regional growth, leading to more equitable development, she said. “Reforms to the consumption tax and a broad-based property tax to provide steady income streams for local governments could be considered,” Ho said. China’s central government collects the majority of the country’s revenue but allocates most of it to provincial and local governments, which are responsible for the majority of government expenditures. This leaves local governments strapped for cash, especially with the struggling property market. As a result, many local governments are now facing a serious debt crisis. EYES ON PROPERTY MEASURESWhile the continuing property market downturn requires further attention from the government, new stimulus measures are unlikely to be unveiled at the third plenum. China announced its latest rescue package for the property market in May. The measures to-date have relaxed buying restrictions and downpayment requirements, reduced the borrowing costs and established a yuan (CNY) 300 billion ($41 billion) re-lending program for social housing. Nonetheless, the government could reiterate the direction towards affordable housing market, including the conversion of unsold homes into affordable housing. As of end-2023, the housing ministry has achieved two thirds of its target to provide 8.7 million units of government-subsidized rental housing in the 14th five-year plan for 2021-2025. NEW FORCES FOR PRODUCTIVITYDuring a visit to Heilongjiang province in September 2023, China President Xi urged the nation to mobilize “new quality productive forces” to stimulate economic growth. This refers to the promotion of new growth drivers for the economy, specifically innovation in advanced sectors and industrial system modernization, alongside the upgrading of traditional sectors such as property and lower value-added manufacturing and assembly to enhance efficiency and sustainability. Xi emphasized that China wants quality growth and not just high growth for its economy. This was clearly the CPC’s top priorities at this year’s National People’s Congress (NPC) in March, critical for its economic sustainability, stability, and security. CPC officials have also emphasized education, the development of science and technology in its efforts to build a modern industrial system. Insight article by Nurluqman Suratman ($1 = CNY7.26) Thumbnail image: Large machinery loading containers onto the China-Europe freight train in Lianyungang, China, on 14 July 2024. (Costfoto/NurPhoto/Shutterstock)

SINGAPORE (ICIS)–Asia’s propylene (C3) market will continue to see new capacities coming from China in H2 2024, while demand is also likely to improve as new derivative projects come up. Margin challenges may continue to impact the market by altering the operations for C3 and its derivatives. As China is the largest producer and consumer globally, dynamics in the country will impact the wider Asia C3 market. In this podcast, ICIS senior analyst Joey Zhou discusses with ICIS analyst Seymour Chenxia the trends and outlook for Asia’s C3 market in 2024.

SINGAPORE (ICIS)–China’s economy posted a second-quarter growth of 4.7% year on year, decelerating from the 5.3% pace registered in the previous quarter, official data showed on Monday. On a quarter-on-quarter basis, the economy posted a 0.7% growth in Q2, less than half the 1.6% expansion rate posted in Q1, according to the National Bureau of Statistics (NBS). In the first half of 2024, China’s GDP growth averaged 5%, which was in line with the government’s full-year target. Persisting property slump, inadequate demand and overcapacity remain big challenges for the world’s second-biggest economy, analysts said. Thumbnail image: Qianwan container terminal in Qingdao, Shandong province in China – 12 July 2024 (Shutterstock)

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 12 July 2024. OUTLOOK: Asia naphtha market braces for supply uncertainties By Li Peng Seng 12-Jul-24 12:00 SINGAPORE (ICIS)–Asia’s naphtha market sentiment is expected to be choppy in the short term due to a lack of clarity on arbitrage supplies against volatile demand. OUTLOOK: Asia EVA market loses shine as demand from PV sector lags By Helen Lee 11-Jul-24 11:25 SINGAPORE (ICIS)–Demand for ethylene vinyl acetate (EVA) from China’s photovoltaic (PV) industry is likely to remain lackluster amid an oversupply in the entire industry chain. PODCAST: China to accelerate hydrogen development via energy law By Patricia Tao 10-Jul-24 11:25 SINGAPORE (ICIS)–China’s recent decision to include hydrogen in its draft national energy law signals a transformative shift in the country’s energy landscape. China EV giant BYD to invest $1 billion in Turkey production plant By Nurluqman Suratman 09-Jul-24 15:24 SINGAPORE (ICIS)–Chinese electric vehicle (EV) giant BYD has agreed to invest $1 billion to set up a manufacturing plant in Turkey which will produce up to 150,000 vehicles per year. PODCAST: Asia recycling market sees increased interest in pyrolysis By Damini Dabholkar 09-Jul-24 11:17 SINGAPORE (ICIS)–Market players in Asia are increasingly becoming more interested in the use of pyrolysis oil as fuel. OUTLOOK: SE Asia PE to see some demand recovery in H2, challenges persist By Izham Ahmad 09-Jul-24 15:07 SINGAPORE (ICIS)–The southeast Asian polyethylene (PE) market is expected to face modest demand recovery in the second half (H2) of the year, but this is likely to be negated by increased supply and the threat of high freight costs affecting import shipments.

HOUSTON (ICIS)–Average global rates for shipping containers moderated this week, and market players in Latin America have even seen decreases in costs from Asia, but rates to the US East Coast are likely to remain elevated as deployed capacity remains tight. Rates on the World Container Index (WCI) from supply chain advisors Drewry edged higher by 1% over the week, as shown in the following chart. Rates from Shanghai to the US East Coast rose by 2.5% over the week while rates from China to the US West Coast rose by less than 1%, as shown in the following chart. Drewry expects freight rates to remain high until the end of the peak season. Rates from online freight shipping marketplace and platform provider Freightos are slightly higher to the West Coast and slightly lower to the East Coast when compared with Drewry’s assessments. Judah Levine, head of research at Freightos, said the convergence of peak season demand, strained capacity on continued diversions away from the Red Sea and Suez Canal, and congestion at Asia ports are keeping upward pressure on rates. Kyle Beaulieu, senior director and head of ocean Americas at Flexport, said in a webinar this week that congestion has eased a bit over the last month at key Asian ports, especially Singapore. But still, Beaulieu said deployed capacity was 91% in June and 94% so far in July. He said general rate increases (GRIs) were largely successful for 15 June and 1 July, but that GRIs set to take effect on 15 July have been cancelled. He said there are no real signs of relief for the Asia-USEC trade lane as capacity is expected to remain tight. For the near term, he expects the Red Sea diversions to support higher rates, and those higher rates to continue being spread across all trade lanes. A trader told ICIS this week that it is seeing softer rates from Asia to South America. Rates from Asia to South America were flat to lower this week according to ocean freight rates analytics firm Xeneta and as shown in the following charts. Additional reporting by Bruno Menini

HOUSTON (ICIS)–The US Department of Agriculture (USDA) is projecting higher corn production but a decrease in soybean output according to the July World Agricultural Supply and Demand Estimate (WASDE) report. In the monthly update corn production for 2024-2025 is forecast up by 240 million bushels on greater planted and harvested area from the June Acreage report, with yield unchanged at 181.0 bushels per acre. The current outlook is also calling for larger supplies, greater domestic use and exports, and slightly lower ending stocks. Corn beginning stocks are lowered 145 million bushels, mostly reflecting a greater use forecast with exports raised by 75 million bushels based on current outstanding sales and shipments to date. Feed and residual use is up 75 million bushels based on indicated disappearance in the June Grain Stocks report. Total use has also been lifted 100 million bushels with increases to both feed and residual use and exports based on larger supplies and lower expected prices. With use rising slightly more than supply, ending stocks are now being projected down by 5 million bushels. The July WASDE revealed that the season-average farm price received by producers is lowered by 10 cents to stand at $4.30 per bushel. For soybeans production is projected at 4.4 billion bushels, which is a decrease of 15 million bushels based on expected lower harvested area. Harvested area, forecast at 85.3 million acres in the June Acreage report, is now down 300,000 acres from last month with the yield forecast unchanged at 52.0 bushels per acre. With slightly lower beginning stocks, reduced production and unchanged use, ending stocks for 2024-2025 are projected at 435 million bushels, which is a decrease of 20 million bushels from the June WASDE. The update showed that the season-average soybean price is forecast at $11.10 per bushel, down 10 cents from last month. The next WASDE report will be released on 12 August.

LONDON (ICIS)–European ethylene spot prices have firmed week on week on the back of better-than-expected demand amid higher feedstock values and an increasing focus on upcoming planned cracker maintenance outages. Spot deals this week have been reported at discounts of 32-35% on the pipeline, prior deals had been at discounts of around 38-39%. Producers say they have received several requests for additional volume offtakes in July. This is being attributed to a combination of factors: Improved sentiment from domestic PVC players following the imposition of tariffs on imports ex-Egypt and the US Continued high container freight rates which are restricting some derivative imports Recent hurricane-related production and logistics disruptions ex-US Firmer month-on-month naphtha values which is likely to drive discussions for the August contract reference price settlement Planned cracker maintenance due to get underway from September particularly that due in Germany with alternative supply flexibility likely to be limited at that time due to pressure issues on the ARG pipeline. With crackers having been run at rates closely aligned with contractual demand – still very much below normal albeit better than in 2023 – there is not too much flexibility for additional volumes at short notice. “Many will have assumed that ethylene supply would always be plentiful,” a source said, “and now they find that it is not the case.” Cracker operators have avoided as far as possible marginal tonne production as spot appetite has been extremely low unless at deep discounts to the prevailing contract price. Crackers are underutilised, so in theory, there is space to ramp up. But with August around the corner and few indications at this stage how long this better-than-expected demand will be sustained, sources assume producers will be reluctant to ramp up production in July. Thumbnail photo: Flooding in Houston, Texas, in the wake of Hurricane Beryl on 8 July 2024, one of the causes of firming ethylene prices. Source: Carlos Ramirez/EPA-EFE/Shutterstock

LONDON (ICIS)–Senior Editor for Recycling, Matt Tudball, discusses the latest developments in the European recycled polyethylene terephthalate (R-PET) market, including, Colourless flake prices rise in Italy Food-grade pellet (FGP) price range narrows on improved demand FGP proactive buyers move to secure volumes ahead of Single Use Plastics Directive (SUPD) implementation in January

LNG-to-power demand surges in early July Coal availability improving but remains lower on year Temperatures retreat from peak but high temperatures still expected SINGAPORE (ICIS)–Record-high temperatures have pushed up power demand, which could prompt Japanese power utilities back in the spot market for additional LNG volumes. The weather outlook indicates the hottest temperatures may have passed for now, after peaking at 36C in Tokyo on 8 July. However, high probability of above-average temperatures remains through to the first half of August. A sustained heat wave would like drain LNG storage and trigger restocking demand in the autumn. Preliminary generation data for the first ten days of July indicates higher gas-fired generation compared to last year and relatively sluggish coal dispatch. POWER DEMAND An ongoing heatwave pushed power consumption in the first week of July up by 5% compared to the same period last year and 6% from the 2018-22 average. The increase in demand was even more pronounced in the first half of the current week, at 10% above the 2018-22 average. The current weather forecast shows closer-to-average temperatures in the next few days before pushing higher again later in the month. STORAGE LNG storage for power generation remains relatively stable but fell below 2m tonnes for the first time since April in the week ended 7 July. At 1.98m tonnes, this is down by 0.1m tonnes compared to 9 July 2023, and still in average territory. However, further pressure could increase the need for replacement volumes in late summer and autumn. NUCLEAR Shikoku Electric’s 890MW Ikata 3 is scheduled to go offline for maintenance from 19 July to 30 September. Kansai Electric’s 826MW Takahama 1 and Kyushu Electric’s 890MW Sendai 1 are scheduled to return from maintenance in late August. Nuclear availability is forecast 14% lower on year in August. COAL Coal plant availability has been improving since June but is still likely to fall 1% short in July compared to the same month last year. Tohoku Electric’s 1GW Haramachi 2 is now scheduled to restart on 24 July, five days earlier than previous scheduled.