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China By Itself Is Not A Strategy

Business, China, Company Strategy, Polyolefins
By John Richardson on 18-Feb-2015


By John Richardson

SOMETIMES a bit of data is worth many thousands of words – and so my choice of chart for today.

It shows that in one major petrochemical, polyethylene (PE), China’s imports in 2014 continued to hugely overshadow shipments to every other major importing region of the world (the chart above excludes Japan, South Korea and Taiwan, but as they are major exporters, rather than importers, of PE this would make very little difference to the overall picture).

In detail:

  • China’s imports totalled 9.1 million tonnes in 2014. Europe was the second biggest destination at 4.7 million tonnes.
  • China accounted for 40% of the 22.8 million tonnes of PE shipments to all of these regions in 2014.

Delving deeper into the China data we find that overall PE imports grew by 3.3% compared with an 11.8% increase in 2013 over 2012.

This lower growth is explained by a slowing economy and a 10% rise in domestic production to around 12.9 million tonnes.

What does all of this tell us? I think it is the following:

1.) The global PE industry remains hugely dependent, overly dependent, on China for placing its surplus volumes. No other emerging market comes anywhere close to equalling China and will not come anywhere close to China in the foreseeable future, based on the 2014 data and realistic expectations of growth.

2.) China’s imports have further to fall because the slowdown in China’s economy will gather pace.

3.) Another reason to expect lower imports is that China will continue to add to local capacity, and run that capacity at operating rates that will surprise some people on the upside. This will help preserve jobs whilst also supporting China’s move up the manufacturing value chain.

Relying on China by itself is not a strategy. What is your alternative?