China Polyethylene ‘Real” H1 Demand Growth At 4-5%

By John Richardson

ContainerportChinaCHINA’s polyethylene (PE) real demand growth – i.e. resin that has actually gone into the manufacture of finished goods – rose by 4-5% in the first half of 2014 over the same period last year, said sources with several overseas producers.

And yet:

  • Imports were up by 20% in H1 2014 over the previous year and by 33% over 2012.
  • Domestic production was up by 6% year-on-year and by 17% when 2014 is again compared with 2012.
  • This means that apparent year-on-year demand growth (imports, minus exports plus domestic production) at 12%. There was a 25% increase in apparent demand in 2014 over 2012.

“Demand is OK – not good and not particularly bad, either, and so I don’t know where this data comes from. Our big customers are doing fine, but they report nothing like this kind actual growth in demand during the first half the year,” said a source with one of the producers.

One theory he put forward was that the extraordinary H1 data was the result of a surge in demand for high-density PE (HDPE) pipes and geomembranes. Government spending on infrastructure remains huge, even though private real-estate construction has slumped as the property bubble is deflated.

But the data doesn’t appear to back up this argument as, year-on-year, HDPE resin imports as a whole (we don’t have a breakdown into different grades) rose by only 11%. Low-density PE (LDPE) imports were up by 37% with linear-low density imports (LLDPE) 24% higher.

This is confusing as LDPE and LLDPE go mainly, of course, into film applications where demand growth tends to be very good in China, but not spectacular – running at or just below increases in overall GDP, we have been told.

We discussed several other benign explanations for the data on Monday, none of which seem convincing.

So, what is the risk that this extraordinary data is the result of speculation by traders – and that PE has become caught up in collateral trading? It is a risk, we think, in the absence of any other credible explanations.