In the SuperCycle, polyethylene (PE) demand growth was closely linked to economic growth. Our research for the 2008 Feedstocks for Profit study showed, for example, a 1: 1 ratio between global growth in GDP and PE demand between 2002-7. But since the Crisis began, the linkage has become much more complex.
China's market presents the most dramatic evidence of the change underway. We are now two-thirds through 2012, and the chart above (based on trade data from Global Trade Information Services) presents a most worrying picture of the lack of demand growth for PE:
• Overall demand in 2012 (red column) is up just 1% versus 2010 (blue)
• China's production is also only up 1%
• Imports are up just 4%, despite slow production growth
This suggests that either China's GDP growth is very much slower than the published data showing >7% GDP growth, or that the traditional link between PE and GDP is no longer valid. Neither explanation is good news for producers.
Similar bad news confronts producers in NEA, NAFTA and Europe. China's market is driven by political and social factors, not economics, and these are leading to a major decline in demand for their product:
• NEA exports are down 28%, with NAFTA down 49%, Europe down 54%
• The gap is being filled by the Middle East (up 42%) and SEA (up 32%)
But even their growth will now be threatened as China brings on more coal-to-olefins plants. 4 of these are already up and running. And as fellow-blogger John Richardson has noted, another 10m - 15m tonnes is currently being planned. If China's growth remains at today's rates, China's import demand could well hit zero. If this happens, where will all the excess product go?