yes… but maybe bottoming?
When petrochemical prices fell to multi-year lows in November 2008 it was deemed a key indicator of deteriorating demand for Asian exports.
As the FT put it (our emphasis):
The drop in petrochemicals prices goes well beyond the fall in oil prices, suggesting that demand for plastics and synthetic textiles is extremely weak as the Asia-Pacific export-oriented nations, including China, suffer from reduced overseas orders
The cost of naphtha — the cornerstone of the petrochemical industry — fell last week to a five-year low of $284 a tonne in the far-east Asia market, down 76 per cent from July’s record high of $1,200 a tonne, according to Platts, the pricing agency.
Of course since then we’ve had a number of petchem related casualties – most prominently the filing for bankruptcy of the world’s third biggest chemicals company and refiner LyondellBasell.
But are we seeing a promising change of affairs? Note the following Bloomberg charts of Asian naphtha spot prices:
As can be seen, the market has been staging a small rally of late, leading the technicals to suggest a bottom could very well have been reached.
Reuters reports Asia naphtha swaps were trading stronger on Monday too with particular demand from South Korean petchem firms, and the return of Taiwanese company Formosa to the market.
This is positive news for Chinese and Asian manufacturing in general – especially given the level to which Asian industrial production has fell in the past quarter – down some 32 per cent according to JP Morgan, roughly double the rate of decline in the Americas and Europe.
Furthermore, Goldman Sachs’ chief economist Jim O’Neil sees yet more reason to be positive about China on the back of such commodity-based indicators. He tells the FT in an interview published Monday that the fourth quarter of 2008 may very well have been the worst for the world economy, with 2009 likely not going to be as bad. On a relative basis he’s specifically positive about the outlook for the BRICs, China and India in particular. As he explains:
If you look at what has really happened last year in the context of where it’s come from it was pretty obvious that in the event of a major slump in the most developed markets the BRIC markets would have a problem.
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