China’s economy from the Asian petrochemicals market

International Business News – The market for petrochemicals in Asian markets was subdued. Weak real demand has dampened expectations of a rising market due to the conversion of China’s preventive measures. The economic slowdown continues and the situation is changing with Chinese demand pushing up the market. This has the potential to ease global inflationary pressures.

The market for caprolactam, a feedstock for nylon, was subdued. Sinopec’s China domestic price for February was set at 13,050 yuan per ton. This is 4% lower than the published price in early February. Norio Hata of UBE (formerly Ube Kogyo) said there is a side of over-expectation of demand growth first, and now it has entered an adjustment situation.

In addition, polyester fiber for apparel due to the impact of weak actual demand, Asian prices only slightly rebounded. It is expected to remain stable after February.

Asian prices for PVC resin used as a construction material are currently up 5% from last month, rising to the range of $900-$950 per ton. In China, which has a significant impact on the Asian market, the flow of goods has decreased. Prices in China’s domestic market are basically flat. Some companies said that “real estate, which tends to affect the PVC market, is sluggish and demand growth is not strong,” and there is also a view that the Asian market will also weaken.

In China, the real estate market, which has previously been a driver of economic growth, continues to be sluggish. 2022 real estate development investment fell 10% from the previous year. Mistrust in real estate is strong as the deteriorating financial situation of development companies leads to disruptions in construction. China introduced measures to stimulate demand, such as lowering interest rates on housing loans, but with limited effect.

Jun Takeda of Itochu Sogo Research noted, “Although bank credit has stopped falling, the decline in residential construction starts and sales has not stopped. It is as if negative investment to fill the deficit may be increasing.” Itochu Sogo Research forecasts that real estate investment will decline in 2023 compared to 2022.

In addition, “forced savings”, which are increasing due to the suppression of consumption, are also at a low level. Forced savings are the source of funds for retaliatory consumption. According to estimates by Itochu Sogo Research, in Japan, the proportion of forced savings relative to consumer spending is about 10%, while in China it is almost zero. Due to the lack of funds, the retaliatory consumption of apparel lacks strong momentum and the rebound of fiber quotes has been slow.

Previously, Asia’s petrochemicals market was pushed up by growing demand from China, one of the world’s top consumers. The National People’s Congress has proposed a target for China’s economic growth rate of about 5 percent in 2023, a downward revision from the 2022 target.

China is exporting surplus products that it cannot fully consume domestically, with UBE data showing that China’s 2022 exports of nylon chips processed into fibers and other products increased to 1.5 times the previous year, while exports of caprolactam increased to 12.5 times if Russian products are included in the re-export. China, which uses cheap raw materials and fuels produced in Russia and in China, is exporting products at low prices and is bringing down the market.

Products using petrochemical materials such as fibers and resins are eventually consumed in other countries such as Europe and the United States. If the Asian market goes into a slump, manufacturing costs will be driven down. China’s economic slowdown is likely to reduce the global inflationary pressure that is increasing.