China Polyolefin Demand Growth Flat In 2011



By John Richardson

POLYOLEFINS demand growth in China is likely to be flat in 2011 over last year, a senior industry executive and a consultant have told us.

“I am quite pessimistic and don’t see the Chinese government winning the battle to bring inflation below 4% during this year (its target) and so the credit restrictions are going to stay in place and could get worse,” said the executive.

“They are not going to loosen the tap again and pour money into the economy until this problem is solved. As a result, I think that PE and PP demand growth will be flat in China this year.”

We have discussed on many occasions before how higher interest rates and increases in bank-reserve requirements have worsened the trading climate since late 2010.

“Since the April 1 local banks have also reduced the amount of credit that can be raised in foreign currencies,” a Singapore-based polyolefins trader told us this week.

“As a result, you now have to open several letters of credit (LC) to buy one cargo compared with only one LC in the past. This is slowing and reducing trade.”

PE apparent demand grew by 13% in 2010 to 17.4m tonnes and PP was up by 6%, according to industry sources. PE demand has grown by a staggering 53% in China over the last two years, estimates UK-based chemicals consultant Paul Hodges.

“All the signs are pointing in the direction of a flat year for China PE demand,” added Hodges.

“Actual consumption, excluding inventory stockbuild, appears to have been down in Q1 versus 2010, and since then more tightening measures have been introduced by the government.”

PE imports were down 14% in Q1 over the first quarter of last year, fellow blogger Hodges wrote in a post yesterday.

Not surprisingly, given the economic outlook in China and concerns about weakening growth globally, pricing headed further south last week, Asian PE prices fell by $10-60/tonne, according to 3 June ICIS pricing assessment. PP declined by $30-80/tonne.

This is a global problem as we pointed out last week.

US polyolefin sentiment remains weak with PE continuing to face import pressure, according to Houston-based ICIS pricing olefins editor William Lemos.

“Downward pressure from cheaper Asian imports continued to weigh on the US PE, keeping buyers and traders on the sidelines,” he wrote in his June 3 report.

US PP remains bedeviled by propylene affordability due to the switch to lighter feeds and lower refinery operating rates. Weaker US auto sales are a further problem.

As in Asia, low-density PE (LDPE) in Europe has led PE pricing down as it became far-too expensive on restricted supply and firm demand. European LDPE has now fallen by 13% since early April - or Euros180-200/tonne – adds ICIS pricing.

Early last week an industry observer told us: “There is a risk that producers in the Middle East panic and chase market share by cutting prices. This would badly hurt the naphtha-based producers in Asia, but in the long-run would hurt everybody as we could end up with an extended period of lower prices.”

Since this interview Middle East producers have aggressively cuts offers for LDPE in Asia and linear-low density PE (LLDPE) in Europe, says ICIS pricing.

It has been a fantastic two years for the industry following the 2008 calamity.

The big issue right now is whether we are in a prolonged downturn or one that will last only a few quarters.Companies need to decide and make a plan.

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