China’s perceived demand has been the major driving force behind the rallies in financial and commodities markets this year. It has also attracted large volumes of polymer imports. But this wishful thinking ignores the fundamental issue that China’s economy is relatively small (just $4trn in a world economy of $60trn) and is 104th in terms of GDP/capita ($3k, versus $46k in the USA).
Instead, traders have focused on the opportunity to make easy money, with at least 50% of the government’s $1trn lending package estimated to have been used for speculative purposes. As the blog has noted, the Dalian futures markets has been a focus for some of this activity – at its peak in April, 80 million tonnes of LLDPE was traded, versus total world annual demand of c2 million tonnes.
Since then, the bubble has begun to deflate, and September’s volume continues this trend. It was down 63% from April, at 29 million tonnes, whilst PVC trading volumes crashed the same amount in just one month. Volume still has a long way to go to return to more “normal” levels, but the trend (blue line) in the chart is clear. No government, not even China’s, can continue to lend 25% of its annual GDP every 6 months.
Helping you navigate the new normal