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China housing, monetary polices to lead Asia's SM market in 2012

By Gustav Holmvik in Singapore

February 22, 2012 - The Asian styrene monomer market in 2012 looks set to take direction from China's housing and monetary policies, with producers and traders expecting the country to ease its credit tightening policy which could support housing construction and in turn boost SM demand, industry sources said this week.

Premier Wen Jiabao signaled in October last year that China is likely to ease its monetary policy, which was tightened in 2011 to combat rising inflation and real estate prices.

The country's Renmin University said in November that the government will likely relax some property market curbs in 2012 due to concerns that slumping prices could hurt economic growth.

Last year, China implemented measures to slow down the real estate market. Buying a second home in some cities was banned, down-payments were increased and new property taxes were introduced to curb fast rising prices. Parallel to that, Chinese banks were told to raise interest rates and restrict lending, further reducing investment appetite.

Analysis continues below...

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Housing sales in China increased by 12.1% to Yuan 5.91 trillion (938 billion) in 2011, at a lower rate compared to 2010 at 18.9%, a sign that the cooling measures were working.

China is Asia's largest importer of SM, buying cargoes from all over the world. In 2011, China imported 3,607,735 mt, down 2% from 3,687,082 mt in 2010, according to customs data.

SM derivatives are used as insulation in houses, to make toys, food containers and automobiles, and in a wide range of other applications. (See related chart: East China inventory)

Looking at this year's demand-supply balance, a trader said: "Northeast Asia's supply-demand balance in the second quarter looks a bit tight [due to several turnarounds, mainly in Japan]." He added that although some new derivatives capacities will start up in China this year, their operating rates will ultimately be determined by demand from both the domestic and export markets.

The development of the domestic market will likely be much determined by China's monetary policy, whether the government will allow bank's to issue more loans and cut interest rates.

In 2011 the export markets were not doing very well as the Euro-zone struggled with a debt crisis and the US economy battled with slow growth. The SM derivative that saw the most significant slow-down last year was likely ABS, with producers slashing production rates and exports and imports falling.

For the whole of 2011, China imported 1,853,723 mt of ABS, down 14.6% from 2010 when imports stood at 2,169,369 mt. The year-on-year fall in ABS imports was attributed to China tightening its monetary policy, which made it tough for many medium and small end-users to get credit, while at the same time they saw their exports hurt by weak demand in the US and Europe.

Some Asian trade sources said that the operating rates and demand for ABS will be the key to how the SM market goes in 2012.

"SM consumers in China said that export orders are not looking good in the first and second quarter of 2012," the trader explained, but added that there is little room for SM prices to drop, because of high crude oil and feedstock prices.

"The question will be if the downstream derivatives can catch up with the high [SM] prices."

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