BLOG: China’s 96% Q1 surge in PP exports mirrors wider export push as trade tensions build

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

The thing about petrochemicals is that events in our industry reflect what’s happening in every manufacturing chain and in the broader economy, as we supply indispensable raw materials.

China’s exports of electric vehicles (but also traditional fossil-fuel motors) and solar panels have soared. This has occurred as local capacity has also soared – and as manufacturing operating rates in general have declined to record lows on weak domestic demand.

China’s polypropylene (PP) exports jumped by 96% in Q1 this year over the first quarter of 2023 to 619,367 tonnes. If the same export momentum was maintained throughout 2024, this year’s total exports would reach 2.5m tonnes compared with 1.3m tonnes in 2023.

The early ICIS data for 2024 suggests that this year’s PP operating rate in China will be just 75% compared with the 1992-2023 average of 87% – during the Petrochemicals Supercycle.

In 1992-2023, China’s PP capacity as a percentage of demand averaged 79%. This looks set to rise to 140% in 2024-2030.

Growing trade tensions – recently underlined by US Treasury Secretary Janet Yellen’s comment that China’s capacity in new green industries was “too big” for the world to absorb – tell us this: China will struggle to grow exports by enough to maintain GDP growth at 4-5% per year.

Increasing domestic consumption to achieve the same end also seems very difficult because of the end of the real estate bubble, an ageing population and the just-mentioned trade tensions.

“Only 37% of China’s national income is spent by Chinese households on goods and services. That level is lower than anywhere else in the world—except for a few small tax havens and commodity hyper-exporters when prices are high,” wrote Mathew Klein on his The Overshoot blog.

Early data for this year suggest that China’s PP demand growth in 2024 will be 2%. Growth in 2023 appears to have been flat. This suggests that demand growth has entered a New Normal of 1-3% per year versus the 1992-2021 Petrochemical Supercycle average of 12%.

The China CFR PP price spread between CFR Japan naphtha costs has averaged just $203/tonne so far this year, the lowest since our price assessments for the above three grades began in 2003.

I keep reflecting-back on Gillian Tett’s masterful Fool’s Gold, her account of the Global Financial Crisis.

In the book, she details how too few bankers, politicians, regulators and financial analysts were able to take a helicopter view of events that led up to 2008 because they were trapped in “silos” of specialist knowledge. This meant that the problems with mortgage-backed securities were largely missed.

So I believe has been the case with the events in and surrounding China. Experts in PP and other petrochemicals were good at building plants and in sales and marketing, but not so good at seeing connections between China’s demographics, its property bubble, its relatively weak domestic consumption and the shift in its relationship with the West.

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.