BLOG: Global HDPE, the value of facts over commentary and the importance of scenario planning

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

The ICIS data continue to tell us that we are facing the biggest shake-up in the modern history of the petrochemicals industry.

Let’s today use high-density polyethylene (HDPE)

China accounted for just 6% of global HDPE demand in 1992 although it had a 22% share of the global population. By the end of 2024, we expect China to generate 33% of global demand from an 18% share of the population.

For far too long, our industry overlooked the warning signs: China’s rapidly ageing population, its real estate bubble and the geopolitical split with the West.

It was only a question of when rather than whether the Chinese economy would enter a more challenging phase. We can see from the ICIS data on spreads and margins that the “when” arrived in late 2021 – the Evergrande Moment.

CFR China HDPE injection grade price spreads over CFR Japan naphtha costs have averaged just $212/tonne since the end of Petrochemicals Supercycle – from January 2022 onwards. This compares with the $487/tonne average during the Supercycle – 1992 until 2021.

So, spreads need to rebound by 130% to get back to where they were during the Supercycle.

This year, as we can see from the chart in today’s post, they have fallen to a new record low.

Global capacity was added largely on the assumption that China’s HDPE demand growth would be higher than is going to be the case.

My highly unscientific “wisdom of crowds” approach, which involved talking to lots of people, suggests that the consensus view was that China’s petrochemicals demand growth in general would be at 6-8% over the long term. Low single digit growth now seems more likely.

Global HDPE operating rates were very healthy during the Petrochemicals Supercycle. Including two years after the end of the Supercycle (the 1992-2023 period), we estimate they averaged 88%.

We forecast a global operating rate of just 75% in 2024-2030.

Global capacity would have to grow by just 173,000 tonnes a year versus our base case assumption of 2.6m tonnes a year if 2024-2030 were instead to reach 88%.

Rationalisation of capacity in disadvantaged regions such as Europe and Asia ex-China seems likely as China, the Middle East and the US carry on building.

So much for what we know. What about the “unknown unknowns”? Here are just two of them:

1. What will be the size of China’s population by the end of the century and therefore its HDPE and other resins demand? Estimates range from 633m to 525m or even less.
2. Can China fully maintain its role as the Workshop of the World? Or will reshoring and trade tensions eventually lead to a major decline in Chinese exports?

Facts, or rather data, are sacred. So should be rigorous scenario planning as “one size fits all” views of the future won’t get us anywhere. Neither will a repeat of the conventional thinking that got us into this mess in the first place.

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.