China CFR PE price spreads hit new record low in 2024
Asian Chemical Connections
Scenarios for China PP trade flows underline the end of the Supercycle and many more new complexities
A MUCH MORE complex world requires better scenario-planning.
China PP price spreads over naphtha hit new low as the long-term shift in markets continues
China block copolymer and raffia-grade price spreads between 2022 and 26 January this year were 144% lower than their long-term average with injection grade spreads 145% lower.
CFR China PE spreads hit a new record low because of all-time high oversupply
So far in 2024, despite supply tighter than it was in December last year, the average per tonne CFR China PE price spread over CFR Japan naphtha costs has fallen to its lowest annual level since we began our price assessments way back in 1993. 2022 and 2023 were the previous record lows.
China’s demographic crisis and the impact on global PP
If we are to see a repeat of 87% in 2024-2030 (the green line in the chart) and assuming my forecast of 2% demand growth is correct, the increase in global capacity would need to average just 154,000 tonnes/year during each year between 2024 and 2030. This is versus our base case of 4.5m tonnes/year of annual increases.
Global ethylene capacity growth would need to be 90% lower than the ICIS base case for healthy 2024-2030 operating rates
The blue line in the above chart involves annual average capacity growing at just 800,000 tonnes/year in each of the years between 2024 and 2030. This is versus our base case assumption of 7m tonnes/year of capacity growth during each of the years.
China’s 2023-2030 polyolefins demand growth and the new mood music
I think that China’s polyethylene (PE) demand growth averaged 2% across the three grades in 2023. I see this year’s growth at between 1-3%, and at the same levels up until 2030.
South Korea may have to shut 48% of its PP capacity in 2024-2030 to return to healthy operating rates
If South Korea kept all its PP plants open, 2024-2030 operating rates would average just 58% compared with 94% in 1990-2023. Profitability would obviously be very poor.
Or South Korea may permanently close an annual average of 430,00 tonnes/year of capacity – a total of 3m tonnes/year or 48% of capacity as of 2023. 2024-2030 operating rates would average a healthy 85%.
How increased global trade tensions could shape China’s PP exports and operating rates
China could either see average annual net imports of 5m tonnes in 2024-2030, net exports of 2m tonnes a year or be in a balanced position. A lot will depend on trade barriers.
Why China may struggle to maintain 4-5% GDP growth: Implications for polymers
If GDP growth were a percentage point lower than ICIS forecasts during each of the years between 2023 and 2040, and assuming the same 0.7% polymer multiple over GDP, annual consumption of the nine synthetic resins would be around 10m tonnes a year lower than our base case.
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