Recover? Not Sure  

Amid a number of economic indexes for the first quarter, some positive signals appeared, as some governmental departments explained, including 6.1% growth of GDP, around 30% increase in stock markets, month-on-month growths for some products and industries in March, imports and domestic output of polypropylene in March hitting historical highs. Does it really begin to recover? Or the stimulus packages do start to take effects? Economists are hesitating to judge.
   The monthly supply (import and domestic output) of polyethylene resin was 1.1 million tons, 1.26 million tons, 1.32 million tons respectively in January, February and March this year, compared with the yearly total supply of 11.38 million tons in 2008 and 11.46 million tons in 2007. The monthly imports of pure polyvinyl chloride resin was 123.3 thousand tons, 194.9 thousand tons and 212.9 thousand tons respectively in this January, February and March, compared to the yearly total imports of 797.5 thousand tons in 2008 and 1.1 million tons in 2007. Who consumed the increased supply? The production of plastic products increased actually in spite of many closedowns in southern regions, but the growth can not match that of resins. An expert of Sinopec Group supposed that resin consumers were possibly recovering their inventories that decreased sharply in the fourth quarter of 2008. The surging growths of imports on pesticides and drugs can be well explained drove by the rigid or necessary demand.
   "Economy is expected to recover, but the way is not smooth," said Zhang Chenghui, official of the Development Research Center of the State Council. "China's economy in the first quarter witnessed positive changes, better than expected, as stated by Premier Wen Jiabao. China may possibly dominate other economies in getting rid of crisis, but it is not the time to relax. The big problems for China are the negative growth in exports and overcapacity. It is more difficult for small and medium enterprises. Large uncertainties for economy prospects stay there."  
   "The stimulus and adjustment program will play a guiding role for China's petrochemical industry to develop from the stage of being large to the stage of being strong," commented Yang Shangming, director of China International Engineering Consulting Corporation.
    Hu Qianlin, an official of China Petroleum and Chemical Industry Association, proposed the government to further control and program the distribution of coal chemical industry that is attracting overheated investment. The stimulus and adjustment program has increased control on coal chemical projects, with stricter permit and narrowed credit.
    "Most projects supported by government's RMB4 trillion investment was launched in Q1, which will drive macro economy to go up from the second quarter," said Yu Jiao, expert of the Economics and Development Research Institute of Sinopec Group. "The new construction projects funded by local governments will also boom. However, the economic recession in many countries seemed not ceasing, which will be difficult for the companies who rely on exports. China will add 3 million t/a new ethylene capacity in 2009."
    Zhang Yongzhi, vice director of China Phosphate Fertilizer Industry Association, pointed out that the overcapacity is serious in phosphate fertilizer sector. The diammonia phosphate production capacity in China was around 11 million t/a at the end of 2008, compared with a yearly demand of 6 million tons. New expansions still come. Adjustment is the key word the program rounded up for this industry.

Zhong Weike
May 7th, 2009