BLOG: Global ethylene 12 months later: Nothing seems to have changed

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

I did the same exercise on global ethylene markets almost exactly a year ago as I do in today’s post.

This makes me wonder why there is talk of early signs of a global recovery in olefins and derivative markets.

Based on the new calculations, what would it take to return global operating rates to their very healthy 1992-2023 average of 88%?

Assuming global production, which is about the same as demand, stays unchanged from our base case, global capacity would have to grow by an average of around 2m tonnes a year versus our base case of 6.2m tonnes a year.

This implies capacity closures elsewhere to get to the 2m tonnes a year of 2024-2030 capacity growth.

Global capacity would need to grow at an average 1% per year to achieve a 2024-2030 operating rate of 88%. This would compare with the 1992-2023 average of 4%.

One might argue that we have underestimated global demand given the likelihood of a loosening cycle by the Fed, perhaps a big dose of Chinese economic stimulus, and booming economies in the developing world such as India’s.

But what happens in the rest of the world is less consequence compared with events in China.

Today’s second chart – showing China’s percentage shares of global demand for the major ethylene derivatives in 1992 (at the start of the Chemicals Supercycle) and by the end of this year – underlines the disproportionate role that China has come to play in driving global consumption:

In 1992, from a 22% of the global population, China’s average share of global demand across these ethylene derivatives was 6%. China’s share of global demand is forecast to reach 40% from only an 18% share of the global population by the end of 2024.

The Economist wrote in its 7 September issue that the real Chinese economic picture may be bleaker than is commonly painted.

“The official [Chinese government] numbers show that the GDP growth rate has reverted to pre-pandemic level, despite the moribund housing industry and low investment in infrastructure,” wrote the magazine

“This is a risible claim, says Logan Wright of Rhodium Group, a consulting firm. ‘The broader problem is simply that the GDP data have stopped bearing any resemblance to economic reality,’ he explains.

My ICIS colleague, Kevin Swift, has looked at disagreements over China’s population level. In the blog’s 30 August post, he wrote:

“Demographer Yi Fuxian at the University of Wisconsin has questioned assumptions about current Chinese population and the likely path forward. He examined China’s demographic data and found clear and frequent discrepancies. These should parallel each other, and they do not.

“Yi posits that China population in 2020 was 1.29bn, not 1.42bn, an undercount of over 130m.”

If China’s population was smaller than commonly assumed in 2020, so perhaps was its chemicals demand, making today’s global oversupply worse.

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.