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China, China And China: The Three Drivers Of Global Styrene

Business, China, Company Strategy, Economics, Environment, Europe, Olefins, Polyolefins, Styrenics, Sustainability, US
By John Richardson on 04-Sep-2017


By John Richardson

THE DATA on global polyethylene (PE) and polypropylene (PP) undermine the notion of booming emerging markets demand. In reality, it is only Chinese demand that has boomed and not the emerging markets as a whole. And when you look at all the commodity chemicals and polymers value chains, the headline data tells you the same thing.

Take styrene as another example. ICIS Consulting estimates that China accounted for 24% of global growth in 1993-2000 and 57% in 2000-2007. This will rise to no less than 136% of global demand between 2007 and 2017. This rather strange number reflects what we forecast will be negative growth in North America, Europe and Northeast Asia ex-China.

Or perhaps a better way look at this is to ignore the regions in negative growth and just look at China’s growth as a percentage of the growth of all the countries and regions where styrene consumption will increase in 2007-2017. These are China itself, of course – along with South & Central America, the Former USSR, the Middle East and Asia & Pacific. This still results in China accounting for 86% of all of this positive growth.

Styrene is thus similar to PE and PP in that we break its consumption growth in China into three historical phases:

  1. 1993-2000: This was the period immediately following Den Xiaoping’s 1992 Southern Tour. The economy became more open to private investment, leading to the beginning of China’s rise to its status as workshop of the world.
  2. 2000-2007:  China joined the World Trade Organisation in 2001. Membership meant the removal of the tariffs and quotas that had restricted China’s exports of finished goods to the west. Meanwhile, North America and Europe were in the midst of their Babyboomer-driven economic boom as the Boomers had yet to start retiring. This meant that westerners could afford lots of Chinese-made plastic toys, fridges, TVs etc. made from styrene’s derivatives.
  3. 2007-2017: China can longer depend on the west to power its growth via exports because the Babyboomers have started to retire. As a result, GDP growth in the west will remain well below its long-term trend. China’s own demographic challenge of an ageing population means that it is losing competitiveness in low-value manufacturing. Given these two dynamics, one might have expected China’s share of global styrene growth to fall rather than rise. But what we have instead seen is a focus on domestic-led growth through the world’s biggest-ever economic stimulus package. Launched in late 2008, it was designed to boost the local economy as an antidote to the negative impact of the Global Financial Crisis. Hence, China’s increased importance as a driver of global styrene demand growth.

Polystyrene’s decline

The story in each of the chemicals value chains is however slightly different, even though the essential headline message is the same. In the case of styrene, the difference rests on a major slowdown in consumption growth:

  • In 1993-2000, global demand growth totalled around 6m tonnes. But this fell to 4.8m tonnes in 2000-2007 and 3.3m tonnes in 2007-2017.
  • Even in China, the story is the same. In 1993-2000 its consumption growth was 1.7m tonnes. This saw a huge jump to 4.8m tonnes in 2000-2007 before falling to 4.5m tonnes.
  • But this is nothing compared with the negative consumption growth now taking place in in North America, Europe and Northeast Asia ex-China. Take Europe as just one example. Between 2000 and 2007, its consumption grew by 660,000 tonnes. But in 2007-2017 we expect it to fall by 840,000 tonnes.

This is largely down to what has happened in polystyrene (PS) as it has lost a great deal of market share to other polymers, particularly PP. In low value end-use applications made from general-purpose PS it has been cost that has entirely driven substitution. A few years ago benzene was very expensive compared with propylene (you of course need benzene along with ethylene to make styrene). Cost has also been a factor in higher-value finished goods where PP is replacing high-impact PS. Performance is another factor here, thanks to investments in improving the technical capabilities of PP.

Another drag on styrene consumption has been acrylonitrile butadiene styrene (ABS). The polymer has again lost ground to PP in some end-use applications. PS consumption growth has thus turned negative both globally and in some regions. To a lesser extent, the same applies to ABS.

Expandable polystyrene (EPS), though, is a different story. Its use as an insulation material has helped to drive good growth across all regions. But EPS is again all about China. Chinese consumption growth will be at 1.7m tonnes in 2007-2017, leaving Chins with a 73% share of the global total. This will be up from 630,000 tonnes in 2000-2007 and a global share of 42%.

The Chinese economy and recycling

What will 2017-2024 be like in China? Its economy, certainly in the short term, will slow down. And in the long term, nobody really has a clue over whether China can build a successful new economic growth model. Building this new model is essential as there is no going back to the old model. As for the west, it faces a long term decline in GDP growth because of the retirement of the Babyboomers.

Meanwhile, the polymers made from styrene will face pressure for more recycling. The same pressure will obviously apply to all other synthetic polymers. The reason is growing statistical evidence of the damage that our throwaway society is doing to the environment.

The world has produced 8.3bn tonnes of plastic over the past 60 years. Almost all of it, 91% in fact, has since been thrown away, never to be used again.But it hasn’t simply disappeared, as plastic takes around 400 years to degrade. Instead, a new study has found that 79% is filling up landfills or littering the environment and “at some point, much of it ends up in the oceans, the final sink”.

And as my colleague Rhian O’Connor writes in this excellent ICIS Insight article that touches on these same environmental themes:

2014 US Environmental Protection Agency (EPA) study found that only 1.3% of US PS is recycled. A small proportion is combusted with energy recovery (15% of plastics – no breakdown for PS). The remainder goes to landfill sites, with plastics around 25-30% of landfill volume according to one study.

EPS growth may also be under threat from environmental pressures, as she again writes:

Marine litter is also an issue for PS – particularly EPS which is used in fish boxes and boat floats as well as for seaside fish and chips containers. It floats on top of the water and takes at least 500 years to decompose. The United Nations Environment Program estimated in 2006 that every square mile of ocean hosted 46,000 pieces of floating plastic.

Don’t assume for one second that this only applies to the west. China is trying to clean-up its environment as it tries to deal with a major pollution crisis, and plastic waste one of the government’s targets.

Growing self-sufficiency

China’s economy might be fine and China may decide that dealing with plastic waste as a low priority. This seems quite possible given the big resources that will be required to deal with air, soil and water pollution caused by heavy industrialisation and soaring auto ownership.

But this still does not mean that the global styrene and derivatives industries will inevitably remain out of the woods. China may decide to opt for complete self-sufficiency through a combination of more capacity at home and Chinese-owned and operated capacity in fellow One Belt, One Road countries.

What’s at stake here? In 2017, we expect that China will need to import some 3.2m tonnes of styrene – by the far the world’s biggest import volume. ABS imports will be at 1.6m tonnes and PS at 750,000 tonnes.

It is obvious that the global styrene and derivatives industries need a Plan B as the uncertainties surrounding China have never been greater.