BLOG: China’s recent economic stimulus barely registers on PE margins

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: The recent clamor about new economic stimulus in China didn’t change anything. After initial stock market rallies, investors parsed the details and realized that Beijing was either unable or unwilling (it is surely a combination of both) to redirect the economy towards much greater domestic consumption and away from investment.

It is what it is. The only question now is how low Chinese chemicals demand growth will go over the next decade and more. Will we see a negative growth in some years for some products, especially those tied to construction?

Today’s main average polyethylene (PE) margins in northeast Asia between January 2014 and 18 October this year, weighted according to the estimated percentage shares of the three grades out of toral production in each of the 11 years from 2014 until 2024. As LDPE accounted for an average of just 16% in 2014-2024 versus 46% for high density PE (HDPE) and 38% for linear low density PE (LLDPE), then of course more weight was given to the margins of the latter two polymers.

Despite all the sound and fury of the recent stimulus:

Margins during the Chemicals Supercycle, from January 2015 until December 2022, averaged a positive $435/tonne.

From January 2022 until August 2024 (before the most recent stimulus), they averaged minus $32/tonne.

From January 2022 until 18 October 2024 (including post-stimulus), they averaged minus $29/tonne; from 1 September-18 October, the margins were at a positive $25/tonne.

In other words, the most recent stimulus has barely moved the needle towards returning the northeast Asia PE business to a health condition. Chemicals and polymers are a very good barometer for broader economies.

A view from this year’s European Petrochemical Association (EPCA): three to nine years before a full recovery

This year’s EPCA in Berlin appeared as if it was attended by more senior executives than is usually the case.

“Normally, companies send junior- to mid-level executives to the EPCA, but on this occasion more senior leaders were present because they wanted to try and gauge what happens next,” said one contact.

I got the sense from my conversations at EPCA that there is recognition at board levels that the global chemicals industry is it an inflection point, not just because of events in China. The last chart in today’s post is a means of getting the debate going about the wider transformation taking place.

Back to the downturn and China. Everyone I spoke to at EPCA recognized that China was front and center of the downturn, given the type of data I presented above.

Estimates of when a full recovery might arrive ranged from a further three years to as many as nine years. But there was also a recognition, as the above chart suggests, that we may never fully return to the old market conditions.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.