April 18, 2023

Chinese Economy Overview

“The Recovery Is On Track”: China Economy Rebounds Strongly With 4.5% GDP Jump In Q1

by Tyler Durden

Tuesday, Apr 18, 2023 – 05:58 AM

Last week, when discussing the latest record – for the month of March – Chinese credit injection which saw a massive 5.4 trillion yuan in Total Social Financing, beating estimates by almost CNY 1 trillion…

… and sparking a surge in China’s all-important Credit Impulse…

… we said that China’s delayed “liftoff was imminent”, and that “the 2008 deja vu meter just went off the charts, because while the US is about to sink into a recession with commercial real estate set to fall all off a cliff, it is once again China that is – willingly or otherwise – set to serve as the world’s growth dynamo at a time when the entire developed world is about to max out at the same time. This is precisely what happened in 2008 when China unleashed the biggest credit expansion in modern history, sparking not only historic growth spree but also an exponential debt increase that sent China’s debt to over 300% of GDP.”

Since then, we have seen China report stellar trade data with both exports and imports sharply higher than expected, more solid real estate prints as housing prices have clearly rebounded from two years of decline, and most importantly, overnight China’s Q1 GDP  also surprised to the upside, rising at a 4.5% annual clip in the first quarter – the strongest quarter for the Chinese economy since Q1 2022 – as strong growth in exports and infrastructure investment as well as a rebound in retail consumption and property prices drove a recovery in the world’s second-largest economy.

The official figure, which exceeded analyst expectations of a 4% rise and was the third consecutive beat of the median forecast…

… followed efforts by Chinese leader Xi Jinping’s government to restore business confidence damaged by pandemic controls last year and abrupt policy changes.

That said, the Q1 growth rate was just short of the government’s recently upgraded full-year target of 5%, held back by a nationwide Covid-19 outbreak at the start of this year, but economists expect it to pick up pace as the year progresses.

Xi, who formally embarked on an unprecedented third term as China’s president last month, is keen to revive economic growth following China’s shocking reversal of its covid-zero policy. Last year, GDP expanded just 3%, missing the official target of 5.5% which was already the lowest in decades.

“Definitely, the recovery’s on track,” said Tao Wang, UBS chief China economist. “The momentum at the beginning of the year was stronger than expected.”

Echoing what we said last week, the FT writes that “China’s rebound is crucial to global economic growth this year as developed nations grapple with persistently high inflation, rising interest rates and sluggish expansion in the wake of the pandemic and Russia’s full-scale invasion of Ukraine.”

“The national economy showed a steady recovery and made a good start,” China’s National Bureau of Statistics said. But the agency cautioned the situation was “complex and volatile, inadequate domestic demand remains prominent and the foundation for economic recovery is not solid yet”.

Curiously, while Chinese commodities markets rallied following Tuesday’s data release, equities failed to hold on to early gains. That’s because the data may have snuffed out recent hopes that bad news is good news and would lead to more stimulus. As Bloomberg reports Sofia Horta e Costa writes, “It’s clear markets are setting a high bar for China’s economy. So China data beats estimates yet again, but hardly anything moves in local assets. What’s going on?”

In March I wrote about how some traders were betting on a consumption-driven recovery, and others believed more stimulus would be forthcoming. You were either in one camp or the other. The issue for markets right now is that the macro picture is falling somewhere in the middle. Yes, the data is good — in some ways much better than expected — but not good enough for bulls to make a compelling case for a reopening boom in the economy.

The rebound is fragile, with pockets of weakness including the property market and factories. It’s also uneven: consumers may be spending more but they’re mainly focused on restaurants and jewelry. And the central bank is erring on the cautious side of stimulus. The bar is increasingly getting higher for any meaningful market reaction. We either need a blowout set of data across the board or more action from Beijing.

Indeed, while the Chinese data has been strong so far, it is certainly not blowout, at least not yet.

China abandoned zero-Covid restrictions in December amid popular opposition to the rolling lockdowns that paralyzed cities across the country for most of the year. The easing unleashed pent-up demand in the retail sector, where sales rose 5.8% year on year in the first quarter and 10.6% in March, both coming in well above expectations. But the base of comparison with last year was low, given that Shanghai started a months-long lockdown in late February 2022.

Premier Li Qiang, Xi’s new number two, signalled at China’s rubber-stamp parliament last month that the government would relax a crackdown on business that has wiped billions of dollars from property developers and internet platforms.

Elsewhere, manufacturing investment rose 7% year on year in the first quarter and industrial output gained 3%. Exports showed strong growth, up 8.4% in the first quarter, and state-led infrastructure investment climbed 8.8%, while overall fixed asset investment rose 5.1%, a modest miss to expectations. Private investment was weak, up just 0.6 %, suggesting a decline in March. The jobless rate fell to 5.3% in March from 5.6% in February, but youth unemployment hit the second-highest mark on record, at 19.6%.

At the same time, while home prices may be rising, housing sector woes persisted: the property sector’s woes continued, with new housing starts tumbling 19.2% year on year in the first quarter. Home sales by area declined 1.8% but sales by value rose 4.1%, pointing to a nascent recovery in prices. Indeed, in March, new home prices rose at their fastest pace in 21 months.

Following the news, Citigroup economists upgraded their forecast for 2023 GDP growth to 6.1% from 5.7% previously after strong data Tuesday. “Consumption recovery continued to be divergent across sectors, with services outperforming,” economists led by Xiangrong Yu wrote in a Tuesday research note. “Normalization in savings and improvement in employment” has provided “potential upside”

The property sector also improved steadily in March compared to the first two months of the year, especially for sales. The growth pickup “perhaps further lowers the necessity of stimulus,” the economists wrote, adding that they “don’t expect anything major” in the upcoming April Politburo meeting. This year could be a “window of opportunities for policymakers to address structural issues, such as weak private confidence, youth unemployment and local government debt.”

Other economists also said momentum would pick up in the second quarter, helped by the low base effect, but warned that consumption and property might struggle to maintain strong growth, while exports could be threatened by weaker developed markets.

Xi’s administration also remained hamstrung by a lack of credibility after hobbling the private sector, experts said.

Keyu Jin, a professor at the London School of Economics and author of The New China Playbook, said the biggest obstacle was the gap in private sector demand, both in consumption and investment.

“It will take time for confidence to come back to the Chinese economy,” she said, although what she really meant is that it would take a lot of new debt and credit. And as we showed last week, Beijing is already injecting record amounts of it as it prepares to become the world’s growth pillar now that the US is set to slide into recession.

https://www.zerohedge.com/markets/recovery-track-china-economy-rebounds-strongly-45-gdp-jump-q1

April 10, 2023

Spandex Product Development

New Breakthrough in Differentiated Spandex May Trigger New Growth Points for PTMEG

PUdaily | Updated: April 10, 2023

On March 29, during Yarn Expo Spring 2023, Lianyungang LDZ New Aoshen Spandex Co., Ltd. launched two differentiated spandex products, temperature-sensitive shape memory spandex and deodorant spandex, at its own new product launch event. According to the manufacturer’s introduction, the elasticity of temperature-sensitive shape memory spandex can change with temperature, achieving characteristics of easy wear below the transition temperature and high resilience at or above the transition temperature; while deodorant spandex maintains water resistance while having the function of neutralizing and decomposing odor molecules.

In China’s total synthetic fiber output, spandex accounts for only 1-2%. It is usually used in the manufacturing of some elastic fabrics, especially sportswear and leisurewear. With the improvement of mass consumption, people’s requirements for fabrics have gradually increased. At present, China’s spandex industry has become quite mature, and the industry’s growth rate has been greater than 10% in recent years, especially the demand for differentiated and high-end spandex has grown significantly. As the main downstream product of PTMEG, spandex accounts for about 90% of PTMEG consumption. In recent years, the growth of the spandex industry has also driven the stable development of the PTMEG industry.

Recent Market Trends: Since the beginning of March, China’s spandex market has been showing a sustained mild weakness. The post-pandemic demand recovery was not strong as expected, and the national consumption sentiment in the textile industry was not high. The peak season for spandex was slightly shorter than in previous years, and prices fell slightly during the month. By the end of March, spandex manufacturers’ orders gradually decreased, and there were few summer orders obtained by them. Although the operating rate could still be maintained at around 80%, due to the inability of spandex to be stored for a long time, spandex manufacturers’ confidence declined, and their enthusiasm for purchasing feedstocks was difficult to sustain. Against this backdro, it has been difficult for PTMEG suppliers to continue supporting the market, and prices have fallen.

Market Outlook: Owing to the international political situation and economic conditions, some countries in the Middle East and South Asia are facing difficulties in approving letters of credit, and the strike wave in many European countries is affecting port operations. The pattern of weak overseas demand may be difficult to change in the short term. Chinese demand has rebounded visibly, but the speed of economic recovery is still unable to quickly boost the textile industry. Downstream manufacturers in the PTMEG-spandex industry chain mainly made replenishment purchases on rigid demand, and it is difficult to change the market weakness in the short term. However, in the long run, the textile industry is still one of the pillar industries in China’s economy. With the growth of the national economy, the demand for textile and its upstream feedstocks will continue to grow. Moreover, the emergence of differentiated spandex will expand the application fields from simple knitted fabrics to medical bandages, healthcare products, car interiors, artificial organ materials and many other areas, thus opening up broader market space. In the industry landscape with multiple growth points, there is still considerable room for growth in the spandex industry, which will drive the positive expectation for PTMEG consumption.

https://www.pudaily.com/Home/NewsDetails/35793

March 28, 2023

Mitsui Reducing TDI Capacity

Mitsui Chemicals : to Optimize TDI Production Capacity

03/28/2023 | 12:48am EDT

2023.03.28

Mitsui Chemicals, Inc.

Mitsui Chemicals, Inc. (Tokyo: 4183; President & CEO: HASHIMOTO Osamu) today announced plans to optimize the production capacity of its Omuta Works’ toluene diisocyanate (TDI) plant in July 2025. TDI is used as a raw material in the production of polyurethane.

1. Objectives and Background

Mitsui Chemicals currently manufactures and sells TDI (Production capacity 120,000 tons per annual) for use as a basic material in the isocyanate chain at the Omuta Works. However, given supply and demand trends in Japan and overseas, Mitsui Chemicals has decided that a reduced output of around 50,000 tons per year will be optimal going forward.
While maintaining a stable supply setup to meet domestic demand for TDI, the Omuta Works will contribute to expansion in growth domains as part of Mitsui Chemicals’ business portfolio transformation by bolstering competitiveness as the company’s principal center for the manufacture of high-performance products, including ophthalmic lens materials and agrochemical products. 【Overview of the TDI plant】

Manufacturing facility	Mitsui Chemicals Omuta Works (https://jp.mitsuichemicals.com/en/corporate/ds/works.htm)
Production capacity	120,000 tons/year (currently) → around 50,000 tons/year (following optimization)
Timing	Planned for July 2025

The TDI plant in Omuta Works 2. Future of the Polyurethane Business

As part of its VISION 2030 Long-Term Business Plan, Mitsui Chemicals positioned polyurethane as one of several businesses in the Basic & Green Materials Business Sector that would be subject to restructuring.
In addition to the forthcoming optimization of TDI production capacity, the restructure will encompass the development of high value-added products, including high-performance methylene diphenyl diisocyanate and high-performance polyols such as polypropylene glycol. Pursuing these efforts will allow Mitsui Chemicals to reduce earnings volatility, improve capital investment efficiency and lay the business foundations for generating stable earnings.
Mitsui Chemicals also intends to bring about a circular economy transformation by setting up a chemical recycling scheme for polyurethane foam and considering the use of ISCC PLUS-certified bio-based toluene produced at the Osaka Works to manufacture greener TDI.

https://www.marketscreener.com/quote/stock/MITSUI-CHEMICALS-INC-6491309/news/Mitsui-Chemicals-to-Optimize-TDI-Production-Capacity-43352477/

March 21, 2023

MDI Overview

Global MDI Demand Growth Slow Down, MDI Facilities in Europe & USA Idled

PUdaily | Updated: March 17, 2023

On March 2, 2023, Covestro released its 2022 group report: “Fiscal 2022 was impacted by global challenges that had significant and perceptible effects on Covestro’s business performance. In particular, the sharp rise in energy and raw material prices during the year, especially in Europe, put a strain on the company. This was compounded by continuing adverse effects caused by the coronavirus pandemic in China, high inflation and an overall slowdown in global economic growth.” And according to Covestro’s report, the global MDI demand in 2022 was 8,250 k tons, increased by 0.2% year on year. The global MDI demand growth was slow down.

MDI Facilities in Europe & USA Idled, Global MDI Operating Rate Down

On February 21, 2023, Huntsman Corporation disclosed on its fourth quarter 2022 earnings call:

“Our Asian markets, primarily China, did experience modest volume growth in the quarter due to slightly improved demand in insulation and automotive when compared to the fourth quarter a year ago. Europe demand remained subdued…In the short-run, we are idling our smaller MDI line in Rotterdam for an extended period until end market demand improves…In the U.S., we’re seeing similar conditions due to rising interest rates…Our Geismar Louisiana MDI plant, we have closed one of our three lines that represents about 30% of our output.” The company’s spokesperson estimated that the operating rates are presently around 70% globally, which is lower than normal levels.

Huntsman’s MDI capacity in the Netherlands and the United States has reached 470 ktpa and 500 ktpa respectively. It means the idling capacity of Huntsman’s MDI facilities in Rotterdam and in Geismar totals about 300 ktpa.

Due to the declining operating rate of MDI facilities in Europe and the United States, as well as the high cost of upstream energy and raw materials, the PMDI market price in Europe is stable. The contract price is €2,400-2,550 /tonne, and the negotiated price is €2,300 /tonne, showing a weak status between supply and demand.

Construction:

Construction is the most important downstream sector for MDI in Europe and the United States. A major MDI supplier saw that two-thirds of their polyurethane Americas business went into construction-related end markets, approximately half into commercial construction, and half into residential, of which 70% was related to new residential builds.

Americas: New housing starts in U.S. totalled 18.67 million in 2022, a year-on-year decrease of 3.1%, according to Federal Reserve Economic Data. From 2020 to 2021, the US housing market revived rapidly amid Covid-19 pandemic and evolved into a real estate boom since the subprime mortgage crisis of 2007. The current housing boom arises from a combined effect of short cycle (post-Covid policy stimulus) and long-term cycle (inventory cycle after the subprime mortgage crisis). Since the Fed tightened monetary policy in 2022, the real estate market has borne the brunt, and drops in indicators such as home sales and market prosperity are comparable to those in the crisis of 2007-2008. Looking ahead to 2023, the U.S. housing market is expected to weaken, while the margin may be small.

New Housing Starts & Completions in U.S., 2018-2023

Europe:

Market instability has been exacerbated by the war in Ukraine and high inflations, which has dampened the intention to invest in new construction projects. In December 2022, construction output in the Euro Area fell by 2.5% month-on-month, reaching the largest decline in the past 18 months, according to Eurostat. Euroconstruct forecasts a significant slowdown in the growth rate of residential construction in Europe to 1.3% in 2024. This results from stagnation trends in both new residential construction and renovation (in 2024, growth is 1.5% and 1.2%, respectively).

Automobile:

Automobile is another major downstream industry for MDI in Europe and U.S.

Europe: On January 18, 2023, the European Automobile Manufacturers’ Association released a report showing that in 2022, as a result of component shortages, the European passenger car market contracted by 4.6% to 9.26 million units, the region’s lowest level since 1993, when 9.2 million units were registered. Agence France-Presse claimed that 2022 is the third difficult year for the European automobile industry. Since the Covid outbreak and the ensuing supply shortages, a large number of factories and showrooms were shuttered. The semiconductor shortage had not eased even after the pandemic stabilized. In 2022, Germany was the only country of the European market to have recorded growth in auto sales, with 1.1% increase. Sales in Italy, France and Spain fell by 9.7%, 7.8% and 5.4% respectively.

Americas:

U.S.A: Many automakers slashed production due to soaring feedstock costs and ongoing shortages of semiconductors and other components, according to Cox Automotive. Full-year 2022 U.S. auto sales are expected to be near 13.9 million units, a decrease of nearly 8.0% from 2021 and down 20% from the market peak in 2016.

Brazil: In contrast, the auto industry in Brazil performed better. The components shortage in Brazil’s auto industry had eased markedly in 2022, driving growth in the country’s auto output, according to Brazilian Association of Automotive Vehicle Manufacturers (Anfavea). Moreover, the increase in Brazilian auto exports to Latin American countries also boosted the rise in the country’s auto industry. Anfavea currently expects that Brazil’s 2023 auto output would rise by 2.2% to 2.42 million units.

http://www.pudaily.com/Home/NewsDetails/35233

March 15, 2023

PO Prices Rising in China Dragging Polyol Along for the Ride

Will PO Prices in China Rise to CNY 12,000/tonne in March?

PUdaily | Updated: March 7, 2023

Supply

In February, multiple PO facilities in China experienced overhauls, technical transformation, or output reduction, including Jishen Chemical, Qixiang Tengda, Yida Chemical, Satellite Chemical, Sinopec Tianjin, Sinopec Zhenhai, etc., involving a total capacity of 1.69 mtpa. The capacity utilization was around 60% in February. Moreover, the synchronous maintenance of overseas facilities resulted in a significant shrinkage of imported goods. Therefore, the overall supply of PO in China was tight. 

Demand

China’s February manufacturing PMI rose 6.9 percentage points month-over-month to 56.7%, indicating that China’s production activities are accelerating to pick up after getting rid of the impact of Covid-19 pandemic and the Spring Festival factor. Downstream manufacturers gradually recovered operation and saw sales increases in February. Besides, the costs of PO increased as the profit margin of chlorohydrin process further narrowed. As a result, PO prices in China kept moving up since February. On March 6, the prevailing offers of PO in Shandong and North China markets stood at CNY 11,100-11,200/tonne EXW in bulk in cash.

Forecast

In a promising March, polyurethane downstream industries are pinned on new hopes. The market sentiment has grown markedly. Thanks to successively convened exhibitions and consumption-based incentives, the demand is expected to further rise. With the approach of China’s Two Sessions, many local governments have issued control measures for the production and transportation of hazardous chemicals, so that the supply of polyurethane raw materials will be more or less affected. PO prices in China are projected to move around CNY 12,000/tonne.

http://www.pudaily.com/Home/NewsDetails/34965