Last May, the blog raised major questions about the sustainability of China’s petchem demand growth surge in 2009-10.
It suggested in an ICB article that “China’s 53% rise in PE demand is a warning sign in itself that its economy may be over-heating. Inflation is also rising – far too high for comfort“.
Now new data on China’s polyethylene (PE) production for 2011 provides clear evidence that a slowdown is underway. The chart updates that in ICB, showing 2005-11 history (based on Global Trade Information Services trade data and ICIS production data) and shows:
• PE demand grew just 1% last year (200kt)
• China’s domestic production grew 3% (300kt)
• Net imports fell, with NE Asia, NAFTA and the EU badly hit
This decline in import demand may well continue. ICIS’ Nigel Davis has highlighted how the government’s 12th Five Year Plan will see ethylene production expand to 24m tonnes by 2015, from 15.2m in 2010. The aim, as always in China, is to create jobs and maintain social stability.
Two important conclusions need to be considered:
• China’s demand surge between 2008-10 was almost certainly a one-off, not the start of a major new growth pattern
• China’s 58% rise in exports in 2011 may actually be the start of a new trend, and not a short-term response to an inventory build
As the blog’s co-author John Richardson noted last week, many of China’s new plants will be built inland, to serve local demand. The coastal plants will therefore need to find a new home for their output, if the export factories cannot buy it, due to lower Western demand for finished goods.
These conclusions are, of course, completely opposite to consensus thinking. This believes a new economic stimulus package, like that seen in Q4 2008, is just around the corner. The consensus may, of course, be proved right in the end. But at the moment, it looks like wishful thinking.
China’s demand surge stabilised the petchem industry after 2008. Prudent business managers will clearly want to assess whether this support will prove as strong in the future.