A downtrend continues in Asian petrochemical shares on concerns over the global economy

09-Aug-11

Asian petrochemical company shares continued to fall on Monday morning on concerns that the global economy, still recovering from a major downturn, will slip back into recession, as per ICIS. At 11:00 hours Singapore time Japan's petrochemical majors dipped- Mitsui Chemicals was down 2.16%, Mitsubishi Chemical dipped 0.35% and Asahi Kasei slipped 1.36%, with the benchmark Nikkei 225 index falling 120 points or 1.26% at 9,330.00. In Malaysia, PETRONAS Chemicals Group shed 5.61%, with the benchmark Kuala Lumpur composite down 2.94% or 44.89 points at 1,479.53. In Hong Kong, PetroChina slumped 3.96%, with the Hang Seng index declined 3.93% or 823.30 points at 20,122.84. In China, the Shanghai Composite index was down 3.67% or 96.46 points at 2,529.96. In South Korea, LG Chemical slumped 4.05%, Kumho Petrochemical was down 1.97% and Hanwha Chemical fell 2.76%, with the KOSPI composite index slipped 2.79% or 54.31 points at 1,889.44. Standard & Poor's downgrade of US' credit rating days after the country averted a debt default weighed down on the overall market sentiment. While most of the economic woes are concentrated in the West, largely on account of mounting debts of the US and eurozone economies, Asia will be hit via exports - the region's engine of growth. China, the world's second biggest economy and Asia's largest, will likely see its growth shaved by a full percentage-point if the US/EU GDP expansion is revised down by the same magnitude, given the hit on exports, said Jun Ma, Hong Kong-based chief economist at Deutsche Bank. An economic recession usually takes a heavy toll on the global commodities market, including oil. While China is a major source of demand (about 10% of global crude oil demand and 30-40% for major industrial metals), the US/EU combined account for 40% of global demand for oil and 20-30% for metals. Therefore, even if Chinese demand remains constant, a slowdown in US/EU growth could put significant downward pressure on these commodity prices, thereby reducing the profitability of Chinese producers in these sectors. China managed to avoid a hard economic landing in 2009 following the government's consistent efforts to flood its system with cash. The lending binge that ensued in the country, however, is creating inflationary problems in the economy. In June, China's consumer price index (CPI) increased by 6.4% - a three-year high.