Post-holiday demand in China fails to meet sellers’ expectations

05-Mar-10
When sellers concluded pre-holiday business in China, the market was rife with expectations of stronger demand and firmer prices pos-holiday in the last week of February. As per Chemorbis, after two weeks of reopening, the post-holiday market outlook has fallen short of sellers expectations of an upsurge in demand. Despite support from higher crude oil and naphtha prices, sellers have been unable to conclude deals at targeted price hikes, as offers in the spot PE and PS markets have started to even move lower. Chinese demand has not been lackluster but the total buying volumes have not matched sellers’ pre-holiday hopes. Though buyers have commenced production and started restocking, they have some existing stocks and are also not avoiding buying in large quantities due to the volatile market situation. Some converters have not been satisfied with the number of orders received and hence have decided not to undertake stock rebuilding. This uncertainty over the direction of Chinese demand has also dampened buying interest in the Southeast Asian markets, where converters are buying in reduced amounts as they stretch their stocks so as to minimize their risks. Manufacturing activity in China continued to expand in February, although the pace of increase was slower and the overall growth rate was the lowest reported for the past four months. China’s Federation of Logistics and Purchasing reported its purchasing manager’s index for February stood at 52.0, down 3.8 points from January. Although this reading indicates a slower pace of economic growth, it still indicates an expanding economy as any reading above 50 is taken as a sign of growth. Markit Economics also revealed that the HSBC Purchasing Managers Index for February also returned a positive reading of 55.8 for February. China’s economic growth for Q4-09 was reported at 10.7%, while its growth for the full year of 2009 reached 8.7% in spite of the global economic slowdown. Reacting to fears of an overheated economy as well as inflation concerns, China’s central bank has adopted a tighter monetary policy for 2010 in an attempt to cool down the economy and restrain excess lending. The central bank increased reserve requirements for member banks in January of this year and Chinese stocks were down 2.4% at the close of trading on March 4 as a number of bankers are predicting an increase in interest rates over the near term after February inflation figures disclosed higher than expected increases in the consumer price level.
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