China's long-term GDP growth rate may slow but the “quality” of this growth is improving. Even if China's GDP rate slows over the next few years we still expect the state's desire to improve the “quality” of production to be disproportionately beneficial for Western chemical names with the strongest positions in more differentiated chemicals. In some areas Western companies should be able to increase market shares alongside accessing market growth as customers use better quality chemicals to improve production quality.

Confidence over mid-term growth remains universally high. Pretty much all companies have strong confidence in the management of the Chinese economy. This has been a common theme every year for the past few years. Consensus view surrounding the formal 7.5% GDP target is that it will be exceeded and that this has been set conservatively ahead of political change later in the year. Nearly all companies we met with believe that a modest further revaluation of the RMB is likely in 2012 and plan accordingly.

Increasing the focus on local R&D. What is very noticeable for most companies is the development of local R&D centres over the past few years. In part this seems to be companies demonstrating a strong commitment to the Chinese market but also this is a step in the direction of producing local market solutions for China. While these investments tend to be more focused on development and not pure research it is clear that companies are slowly starting to feel more confident in doing research in China – often through university collaborations – given the strong education platform in China and pro-active government support.

Eoin Treacy's view The chemicals sector is intertwined with China's drive to continue to move up the value chain in terms of manufacturing. A number of such companies, particularly in the USA, are also benefitting from lower input costs in the form of natural gas. The sector has been among the better performers globally and its high degree of commonality suggests broad based bullish support.

In Europe, Linde is posted new all-time highs. Air Liquide, BASF, Syngenta, AZ Electronic Materials, Lanxess, DSM and Umicore have all returned to test their respective 2011 peaks following impressive rebounds over the last few months. Symrise and Bayer have at least paused in the region of their peaks. Some resistance in the region of prior peak is to be expected and they would need to extend declines below their respective 200-day MAs to question medium-term demand dominance. Clariant and Akzo Nobel experienced deeper declines in August and have subsequently rallied less. It will need to continue to find support in the region of the 200-day MA if the medium-term upside is to be given the benefit of the doubt. Croda International posted a large weekly key reversal last week suggesting a reversion towards the mean is now underway. Israel Chemicals has found support in the region of the 2010 lows and a sustained move below ILS4000 would be required to check recovery potential.

The weakness of the Euro has probably contributed the performance of European chemical companies over the last few quarters. US shares exhibit more diversity in their chart patterns. Praxair hit a new all-time high on Friday, following a mild consolidation. PPG Industries shares a similar pattern with a number of European companies as its tests its 2011 peak. Dupont de Nemours, Air Products & Chemicals & Dow Chemical have all been consolidating above their respective 200-day MAs for the last month and look more likely than not to extend their advances. Celanese Corp pulled back rather sharply this month, but has found at least short-term support. A sustained move below $40 would be required to question potential for some additional upside. Eastman Chemical has pulled back from the 2011 peak but has so far held the majority of its earlier advance. Provided it finds support above or in the region of $45, the medium-term upside can continue to be given the benefit of the doubt.