China ended it’s Coronavirus lockdown while rest of the world went into lockdown mode. I understand Chinese factories kept manufacturing at normal pace while there was subdued demand globally, lead to huge inventory build up. This situation has resulted into softening chemicals demand and prices in China, may be an early sign of trouble ahead for the global industry in 2021.
Since large Indian chemical companies are in an expansion mode, will we see a similar situation of inventory build up and experience a depressing cycle for the near term? Any qualitative response from seniors would help.
2 Likes
Could you please tell the source of this information?
1st few minutes of this podcast talks about Brexit, then they talk about the chemicals inventory and prices
https://www.icis.com/explore/resources/news/2021/01/05/10592443/podcast-faltering-china-chemicals-signal-caution-for-2021
1 Like
the guest on the podcast said “some” products. not “all”.
so there is literally no specific info. its too vague.
We need not take their statements at 100% face value as they are sharing their opinion, hopefully based on data. I texted the conversation, I agree he mention there is a steep fall in prices for certain products but the tone sounded softness in prices in the chemical industry.
Starting at 12.50 “if you look at what’s going on, perhaps away from US and Europe, China, China has done remarkably well, really recovered strongly from the pandemic, from pandemic restrictions, business has been running very very strongly, lot of it has to do with export demand or feeding export markets, companies have clearly taken market share in export markets. A lot of materials in the chemical sectors is going into inventory as well and we are seeing the 1st signs, I think of the impact of that inventory on prices particularly, demand perhaps is not quite strong as it was and prices are falling for some products sharply in China at the moment and if you wanted to have a forward indicator you could almost suggest, if the way China goes perhaps rest of the world goes, chemicals terms that would be the note of caution”
I did spend substantial time analyzing the known information about our chemical companies. Chinese raw material is used from n-3 or n-2 steps
—sent an incomplete statement
I did spend substantial time analyzing the known information about our chemical companies. Chinese raw material is used from n-3 or n-2 steps in our chemical industries. My wishful thinking says, sales volume, profit as a present of sales could remain same,
Today’s (06-02-2021) business standard
How does this “normalise”? Does it go unsold, or sold at lower prices? Production goes to 60% util from 90%? If you notice all the small niche players that people here have posted capacity expansion plans which seems to go from at least 2X to 10X, what happens when it normalises?
I do understand going from a small base to big one. If they mean, going from 100t(from an initial 20t) to 200t is not possible now, yeah, then I see they may have a point.
I have seen in a Chinese newspaper that there is a severe shortage of containers and shipping costs have sky rocketed, when I see India’s export data I do not see spike in freight prices. This would give short term opportunity to dispose inventory from Indian companies.
Chinese Lunar new year is round the corner and traditionally China is virtually closed during this year, this should again give an opportunity to get our inventory reduced. Shortage of containers is leading to severe shortfall of electronic chips.
My investments are based on the thesis of China plus one, will US and Europe carry this sentiment for long? Will competition drive their future decisions? I think time will tell.
Disclosure: 80% of my portfolio is in Chemicals, API and API plus formulations companies
…China is virtually closed during this period, this …
Thanks, that seems to a good tack to consider at least for the short term.
Jyothi,
I think going forward there could be some softening of prices for sure, but that doesn’t take away the big opportunity for India anytime soon. I do also have investment into chemicals and my investment rationale is a) Anti-pollution measures b) China +1 c) US-China trade war d) import substitute (for India) etc.
I wish what you said is reality and Indian chemical companies continue to flourish. Let me be a devils advocate a) large European companies are going for green and sustainable chemistry, they are viable models and investors give very high valuation to these companies. China may not have the technology right now, but they could acquire. b) As mentioned earlier, China + 1 sounds good, but how long will customers pay a premium, what if the premium is high c) Will Biden follow Trump’s footsteps, Biden sees China as a strategic adversary and may not impose severe tariffs d) if import substitution becomes expensive after expiry of PLI schemes, somebody in the value chain has to bear the cost
The other day I read in a Chinese (Mandarin) news paper, mentions that Chinese government announced huge incentives to textile manufacturers as they lost business due to Covid. They can extend incentives to other industries as well
Finally, I don’t want to scare anybody reading this post, also don’t mean to say that the entire industry will get into a slow down mode but I am listing possible scenarios and some of them look like distant possibilities