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Asia: China to maintain high growth as rest of region picks up

by Jean-François Tremblay
January 13, 2014 | A version of this story appeared in Volume 92, Issue 2


After the mildest of economic slowdowns last year, Asia is likely to resume its role as one of the locomotives of the world economy in 2014.

For the chemical industry, healthy economic growth in the region will translate into strong demand for a wide range of materials. Profitability will likely rise for chemical companies because, compared with past years, fewer chemical plants are going to come on-line in Asia.

“The gap between supply and demand is tightening,” says Tony Potter, vice president for the Asia-Pacific region at IHS Chemical, a consulting firm. “Prices of chemicals will stay flat, but oil prices will moderate; therefore, margins will improve.”

In terms of economic strength, China has been the big surprise. The country registered “unexpectedly strong” economic growth of 7.7% in 2013, according to the Asian Development Bank (ADB).

Last year, Chinese growth was buoyed by infrastructure investment. This year, private consumption and private-sector investment alike should be supported by structural reforms that the government approved at a national conclave in November.

India’s economy grew by less than 5% last year, a lackluster performance for the developing country. In 2014, ADB expects, Indian growth will pick up on the strength of higher exports. In addition, private-sector capital spending should resume after national elections in the first half of the year remove corporate uncertainty.

As economies grow in Asia, so should demand for a wide range of chemicals. Profit margins for building blocks such as ethylene and propylene will particularly benefit because relatively few petrochemical complexes are coming on-line. “Demand growth will outstrip supply growth in 2014 and 2015,” Potter says.

Synthetic rubber will also enjoy improved profitability. In 2013, profit margins were pressured by an abundance of natural rubber during a year when many new synthetic rubber facilities came on-line, especially in China, according to Potter. But Asia’s booming regional market for motor vehicles is helping to correct the situation. “Excess capacity is getting mopped up,” he says.


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