By John Richardson
THE WORLD AS it stands today tells us that the US is doing extremely well in the key China (polyethylene) import market. As we shall also discuss, the same might well apply to other US export markets.
Let’s again, as I did earlier in the week, use high-density PE (HDPE) as an example. But the patterns ar the same in low-density PE (LDPE) and linear-low density PE (LLDPE).
In 2023, the China Customs Department reported that China imported (in rounded-up numbers) 763,000 tonnes of HDPE from the US. This was up from just 220,000 tonnes the previous year. Meanwhile:
- Imports from Saudi Arabia fell to 960,000 tonnes from 1.3m tonnes; imports from the United Arab Emirates slipped to 918,000 tonne from 1.2m tonnes; shipments from Iran declined to 614,000 tones from 1m tonnes; and arrivals from South Korea were at 700,000 tonnes versus 804,000 tonnes.
We can then take this trade data and multiply thw tonnes for each country by average China CFR HDPE prices for 2023 versus 2022 to get a rough estimate of the winners and losersby sales turnover. This was among China’s top ten trading partners. Take the 2022 numbers away from 2023 and the result is the following chart.
Iran’s year-on-year turnover was down an astonishing $468m tonnes because of the dip in its shipments to China and lower HDPE pricing resulting from record levels of global oversupply, which, as I again discussed earlier this week, is largely down to wrong estimates of Chinese demand growth.
One can understand the decline in Iranian sales turnover because of sanctions. Less so the respective $449m and $412m dips in Saudi and UAE turnover given, of course, their lack of sanctions and their feedstock advantages.
Part of the Saudi and UAE declines might have been down to reduced production in H1 2023 because of turnarounds.
Another factor in the case of Saudi Arabia could be its higher feedstock costs relative to the US. ICIS cost curve analysis shows that some US HDPE plants were in better variable and fixed costs positions than some of the facilities in Saudi Arabia in 2023. This trend has continued into 2024.
The cost of Saudi ethane was increased by Saudi Aramco from $1.75/m btu to 2.50/m btu on 1 January this year. The last change in ethane prices was in December 2015 when Aramco increased prices from $0.75/m btu to 1.75/m btu.
Another aspect to this story is of course rising China self-sufficiency – the other reason along with disappointing demand growth why we are going through a long period of weak producer pricing power. In 2019, China’s net imports of HDPE were 7.8m tonne; in 2023, net imports fell to 4.7m tonnes.
South Korea’s 2023 turnover in China was down by $176m tonnes. The country lacks the feedstock advantages of the Middle East and the US and is way-too dependent – given the shift -in industry dynamics – on exports to China. Middle East and US exports are more diversified.
As you can also see from the footnote to the above chart – when we this time we take 2022 numbers away from 2023 numbers – the US gained a whopping $500m in turnover in 2023. This trend has continued into this year as the chart below shows.
The US was a further $106m ahead year-on-year in January-June 2024 as the UAE and South Korea clawed back some ground.
Whereas average HDPE prices again declined, the UAE and South Korea saw a recovery in mports reported by China Customs. The US gained more ground: Imports from the US in January-2024 were 438,000 tonnes compared with 314,000 tonnes a year earlier.
Here were the countries that saw losses in sales turnover in January-June 2024.
“In H1 2024, US [total] PE exports were 46.5% of total sales and operating rates above 90% – a far cry from 21% in 2017 when operating rates were also much lower in the mid-80% range,” wrote my colleague Joe Chang in this ICIS news article.
This suggests that the US gained sales turnover in markets other than just China in H1 2024. The comprehensive nature of ICIS price benchmark and trade data means that it is possible to produce charts like the ones above for other countries and regions such as Europe, Latin America, Africa, Turkey and India.
But the fundamentals of this business are changing
Much of the above analysis is about feedstock advantage, the tried and trusted method of analysing historic trade flows and forecasting future exports and imports.
But I believe we are entering a world where geopolitics will be an important shaper of export and import flows in HDPE and other chemicals and polymers.
If the US-China geopolitical split continues, this raises the question of where China will in future source most of its petrochemical import volumes. Will the Middle East become a more favoured partner regardless of cost-per-tonne economics? And, anyway, recent natural-gas liquid discoveries in Saudi Arabia suggest that the Kingdom’s feedstock-cost position might improve.
Where will South Korea sit geopolitically given its historic close relationship with the US? How might this effect its ability to export to China?
And in a murky and complex world what will happen to China’s growth in petrochemicals capacity, as I discussed in my 15 July blog post?
Perhaps its cap on refinery capacity from 2028 onwards, due to the electrification of vehicles, will limit its capacity growth options, thereby creating a bigger opportunity for exports – even the ones to the right of cost curves.
However, China’s refineries could be increasingly turned into chemicals feedstock centres as gasoline and demand declines.
But China’s overall refinery operating rates may decline if, because of increased trade tensions, it struggles to export its gasoline surpluses. Building new heavy industry capacity could also become pretty much impossible because of China’s carbon reduction targets. It wants to reach peak carbon emissions before 2030 and carbon neutrality before 2060.
There is, though, the risk that China’s demand growth in some chemicals might even turn negative because of the geopolitical, demographic and debt challenges.
A later blog post, from my ICIS colleague Kevin Swift, will discuss demographic analysis which suggests that China’s population in 2020 could have been 130-250m lower than the 1.42bn official number.
Such a vast discrepancy would of course have major implications for historic estimates of China’s chemicals demand and estimates of future growth. if the more bearish estimates of historic population levels and population decline by the end of this century prove accurate, can China escape its middle-income trap?
Geopolitics, demographics, debts and sustainability will, I believe, be the new defining shapers of chemicals trade flows. The world as it stands today, represented by most of the analysis in this blog post, is coming to an end.