Falling petchem imports highlight China weakness

SINGAPORE (ICIS news)--A decline in China's petrochemical imports signals that Asia's biggest emerging economy is losing steam with shrinking global consumption set to continue to crumble exports - its major pillar of growth - well into next year, analysts and industry players said on Wednesday.

China's intake of most major petrochemical products in October declined dramatically from a year earlier, indicating the slump in domestic consumption and in manufacturing activities, analysts said.

China is a major importer of petrochemical products, which are used as raw materials for its various industries whose end-products are mostly shipped out of the country.

Its overall growth in exports in 2009 would slow to 3.5% from 11% this year due to economic weakness across industrialized and emerging economies based on the World Bank's quarterly report update on China.

The last months of 2008 may be the worst time for the chemical industry given pressures on overall trade, with the most optimistic recovery scenario only possible late next year, said Arden Dai, a chemical analyst at consultancy firm Frost & Sullivan.

Butadiene (BD) imports fell 53% from the same period a year ago to 4,000 tonnes due to dwindling demand from the downstream synthetic rubber and plastics markets amid the global slump in car sales.  

Downstream styrene butadiene rubber (SBR), butadiene rubber (BR) and acrylonitrile-butadiene-styrene (ABS) producers had either slashed operating rates or shut down plants to keep inventories from building up.

With supply exceeding demand, Chinese BD producers offloaded their rising inventories in the export market, pushing Chinese BD exports up by a whopping 1,200% to 13,000 tonnes compared with only 1,000 tonnes in the same month in 2007.

Styrene imports fell a hefty 28% to 191,243 tonnes in October from a year earlier as demand for styrenic resins like polystyrene (PS) and acrylonitrile-butadiene-styrene declined.

Demand for the monomer had also plunged as buyers preferred to hold limited stocks due to uncertain demand while imports of PS and ABS also declined in October as manufacturing activities, especially in southern China, were hard hit by decelerating global growth.

Some products such as linear low density polyethylene (LLDPE) saw higher imports last month as importers prepared for the upcoming agricultural film application season that will start in February 2009.

“Chinese importers have to buy earlier as the shipment window in January will be narrower due to the Chinese New Year holidays starting in end January,” a Chinese trader said.

Emerging markets as a group buy more than 50% of China's exports and had continued to see strong imports until recently, the World Bank said in its report that was released on Tuesday.

With much-weaker exports, China's economy will slow to 7.5% in 2009 from the 9.4% pace projected this year, the multilateral institution said. The country is expected to end five years of annual double-digit growth in GDP this year.

“The government's more expansionary macroeconomic stance and higher government-influenced spending is going to play a key role in 2009,” the World Bank said.

The CNY4,000bn ($586bn) fiscal stimulus package for 2009-2010 should help keep the country's economy growing at a “fairly good rate”, said David Dollar, World Bank's country director in China.

“China needs an aggressive fiscal stimulus package to help achieve the 8% GDP growth target,” said Ma Jun, chief economist at Deutsche Bank.

Heavy pump-priming may require the government to incur a budget deficit of CNY400bn next year, said Ma.

“(The government should) be prepared to introduce further stimulus in a supplementary budget in the second half of next year, in case the first budget fail to provide enough support for the economy," he added.

China's October petrochemicals trade