China à la Carte: Digesting Global Risks Over Dinner

Daily Chemical Reaction

China à la Carte: Digesting Global Risks Over Dinner

Key Findings

• General Thoughts: We discuss our well-attended and very insightful dinner with Dragoman head Tom Harley last night in Houston. While many geopolitical topics were covered, China’s policy and trade relations took the lead.
• Supply Chain/Commodities: We discuss the further losses at Sadara and question whether weak markets in Asia for the company may be replaced by local demand growth in Saudi Arabia – eventually leading to profits.
• Energy/Upstream: China’s weaker oil data may be influenced by local inventory moves, but gasoline demand growth is slowing – possibly driving more exports but also possibly driving more integrated chemical production
• Sustainability/Energy Transition: Battery oversupply is different from electrolyzer oversupply – batteries are fungible, while electrolyzers are long-term capital commitments. You need to choose a supplier who survives.
• Downstream/Other Chemicals: We discuss Home Depot cutting its 2024 sales outlook, as the recent drop in US mortgage rates has not caused an activity surge – will Fed rate cuts jolt consumer spending as many are expecting?

Exhibit 1: Foreign Investors Pull Record Amount of Money From China. China’s direct investment liabilities in its balance of payments fell ~US$15bn in 2Q24, marking only the second time this quarterly figure has turned negative.

Source: Bloomberg, State Administration of Foreign Exchange of China, C-MACC Analysis, August 2024

See PDF below for all charts, tables and diagrams