Worries that inflation could derail economic growth in India, China in 2010

The year 2009 was an unexpectedly strong year for the chemical industry in Asia. A strong recovery in Chinese consumption resulted in record-high petrochemical and polymer imports coupled with a booming Indian market that is currently much more self-supplied as per ICB in ICIS. However, inflation looms as a major challenge in 2010 both for China and India. China and India are coming off a strong year, but a repeat in 2010 is less likely. Inflation could derail Asia's giant economies. In 2010, the biggest inflationary threat to China could be surging property prices - one that the government needs to address without causing a double-dip recession. Adding to this will be the high cost of food due to poor harvests and higher energy prices. Fiscal tightening will be necessary to keep inflation in check. This is likely to occur as China seeks to stabilize production at large, new integrated refinery-petrochemical complexes, which will, sooner or later, result in a big fall in import requirements. A combination of deep refinery-petrochemicals production cuts in China in Q4-08, start-up delays, mainly in the Middle East, China's massive economic stimulus package and a big rise in domestic bank lending have led to greater import volumes. Polyethylene (PE) shipments to China surged by 63% in January-October 2009. The country's polyolefin demand is likely to rise by 20-35% in 2009 compared with 2008 on a dip in recycling, restocking, strong domestic demand and speculation. Other market players feel that growth in 2010 should be much more in line with GDP, expected to grow by 8-10% in 2010.
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