By John Richardson
THE DEVELOPING World ex-China mega region – comprising developing Asia and Pacific including South Asia and most of Southeast Asia, Latin America including Mexico, Turkey, Africa, the Middle East and the Former Soviet Union – is the bright future of global polymers demand.
What the future looks like is of course going to be incredibly difficult to track as I discussed in my blog post on Turkey earlier this week, the first of a series of posts on the most-promising economies in the region.
During the 1992-2021 Chemicals Supercycle life was very simple, making demand-planning easy.
You could always depend on demand growth being strong, firstly because of lots of young people moving to the cities in China to make goods for export. Next came China’s enormous debt and speculation bubble from 2009 onwards, which was mainly centred on real estate.
China’s outsized role in driving global polymers growth in 1992-2021 is made clear by the chart below. You only really had to worry about what was happening in one country if you wanted to shift a large chunk, in large vessels so making logistics cheap and easy, of your production.
We are just past the end of the Chemicals Supercycle, the distortions of which could well last up until at least 2030 as I shall discuss later-on.
This is the reason why I have drawn the chart and compiled the table on the right up to the end of 2024, when ICIS estimates that China will still drive 40% of global polymers demand from just 18% of the global population. Switch back to 1992 and China was responsible for just 9% of global demand from a 22% share of the population.
The good news in the chart and table on the right is that the Developing World ex-China by the end of this year is forecast to generate only 32% of global consumption from 68% of the world’s population. There’s a lot of room for growth as people in the region get richer. As they get richer, they will consume a lot more polymers.
Yes, sure, re-use and redesign will to some extent erode demand for some polymers. Bans of “frippery” end-use polymer applications – stuff that we don’t really need such as perhaps single-serve plastic pouches – will also eat into the growth of demand for certain resins.
But think of the hundreds of millions more people that will be able to buy washing machines, smartphones, computers and automobiles for the first time. Think of increased services-related polymers demand as there is greater availability of potable water, modern-day sanitation and modern-day health systems.
Patterns of growth are, however, going to be much more complex and volatile than during the Supercycle because, quite obviously, there will be far more than just one country driving the next big upswing in consumption. There will be hundreds of countries with their own economic, political, social, geopolitical and environmental challenges.
But it seems logical that demand across the whole region will in volume terms eventually take over from China as the biggest driver of global consumption. Its population is expanding as China’s shrinks. In many countries in the region, populations are young as China ages, probably more rapidly than the official numbers suggest.
This will occur as demand growth in the mature economies of the developed world remains low, albeit from a high base.
Getting to grips with the Developing World ex-China will not involve us sitting in our metaphoric or even literal, pyjamas making broad-brush assumptions. To adequately understand the region, we will need to set up new demand management teams with the budgets to visit the region directly.
We will also need to canvas a range of views as we build a broad and deep range of scenarios.
Here are just some of the variables we will need to consider: Age profiles of populations, degrees of political and legislative stability, currency fluctuations, costs of borrowing, debt positions, the economic effects of climate change and the impact of geopolitics on manufacturing investments and trade flows.
We may need to wait until at least 2030 for oversupply to correct itself
Here’s the very big challenge, though: Basic mathematics tell us that the Developing World ex-China isn’t going to absorb today’s record levels of overcapacity anytime soon. Let’s use polypropylene (PP) to illustrate this point. The same applies to many other chemicals and polymers.
Despite the Developing World ex-China’s much bigger population of around six billion versus consensus Chinese population estimates of some 1.4bn (although, as I said, Chinas population could be lower than this), ICIS still expects this by 2030: Developing World ex-China’s demand for PP at some 8m tonnes lower than China’s.
The ICIS base case assumes that global PP capacity exceeding demand will average no less than 25m tonnes a year in in 2021-2024. This compares with just 5m tonnes a year during the 1992-2021 Chemicals Supercycle.
Global operating rates averaged 87% in 1992-2023. But given this oversupply, our forecast for 2024-2030 is 77%. To achieve 87%, assuming our base case assumption for production is right (the same as demand), capacity would have to grow by an average 2.2m tonnes a year versus our base case of 4.8m tonnes.
As feedstock-advantaged producers such as those in the Middle East are likely to press ahead with projects, and as China may continue to add more capacity as it becomes a net exporter, capacity growth of 2.2m tonnes a year implies closures of plants elsewhere. Europe and South Korea are among the regions and countries at risk.
The ICIS base assumes 4% average annual PP demand growth in China in 2024-2030 when 2%, in my view, is more likely. If 2% growth were to happen, and demand growth in the other regions was the same as our base case, capacity growth would need to be just 1.4m tonnes year to achieve an 87% operating rate in 2024-2030.
Let’s next take 2% off Chinese growth and add this to our base case forecast for the Developing World ex-China. Capacity would still have to grow by just 1.9m tonnes a year to achieve an 87% operating rate in 2024-2030 compared with, as mentioned earlier, our base case assumption of capacity growth of 4.8m tonnes.
Now let’s put all of this into a handy chart.
Global recovery in 2025? What global recovery?
As chemicals companies prepare their budgets for next year, the data and market intelligence are being parsed for signs of a recovery. Sure, in certain regions and countries demand may bounce back. The fractured and erratic nature of global logistics, with this year’s best example being the Red Sea crisis, could also offer opportunities.
And in some of the countries in the Developing World ex-China, 2025 looks set to be another year of strong consumption growth from often low starting points or “bases”.
But the global numbers are what they are. Until we get over the China demand and supply drag – which could take seven or more years to fix depending on the pace of capacity closures and project cancellations – we will remain in a global trough
And while, as I said, the Developing World ex-China offers long-term big opportunities, we should keep in mind the words of Mark Twain: “History doesn’t repeat itself, but it often rhymes”.
Analysis of China was often very shallow, missing the growing demographic and debt challenges. This is why we need some seriously good analysis of the rest of the developing world. Again, we must not sit in our metaphoric or real pyjamas and assume that we understand “far away” countries that we might never have even visited.