China petrochemicals recovery on G20 trade war progress will be shortlived

Business, China, Company Strategy, Economics, Olefins, Styrenics, US

By John Richardson

China petrochemical and polymer price spreads over naphtha feedstock costs will rebound over the next few weeks as a result of events at the G2o meeting in Japan. The US has agreed to resume trade talks with China and pause on imposing any more tariffs on Chinese goods.

Buyers of petrochemicals and polymers will be a little more willing to build inventories in some value chains where overstocking isn’t a problem. Producers will as a result gain a little more pricing power.

The improvement in spreads will act as a further reminder that spread analysis remains the single best means of gauging the health of the petrochemicals industry.

But we are not out of the woods yet. Far from it. To stretch the old cliché further, we have only just walked past the first few trees as we enter a new era of great power competition.

The US and China are still locked in geopolitical disputes over for issues such as China’s increased presence in South China Sea.

President Trump surprised everybody during the G20 by reversing course on the ban on US companies selling products and services to the Chinese tech giant, Huawei. But that’s gone down badly with hard line Senators. His promise to Xi may not get Congress approval.

This tells us that despite the pause for breath in the trade war the US and China remain on course for a Cold War and a war over access to technology.

As for the trade war, US tariffs on $200bn of Chinese imports remain in place, as do Chinese tariffs on US imports including a range of petrochemicals and polymers such as methanol, ethylene glycols, HDPE, LLDPE and PP.

Only a brief recovery in spreads

Because this is only a pause for breath in the trade war and because, as I said, we still face a Cold War and a technology war, I cannot see a big recovery in “big ticket” or expensive goods in China such as autos.

“Why would anybody suddenly want to go out and buy a car, let alone a new house, when they know the US President could so easily change his mind? I don’t see any recovery in demand as long as the tensions between the US and China remain,” said a Shanghai-based executive with a polyolefins producer.

The weak Chinese consumer markets are not just the result of the US and China trade tensions. The availability of credit in China remains constrained as the Chinese government continues its battle against bad debt

So expect the recovery in spreads of Chinese pricing over naphtha to quickly fade away as petrochemicals buyers realise that real demand hasn’t recovered. Spreads for key products such as benzene, mono-ethylene glycol and PE will quickly return to multi-year lows.

PP demand growth at just 2%

The latest China Customs department PP import data and our latest estimates of local production show that apparent demand growth (net imports plus local production) grew by just 2% in January-May 2019 on a year-on-year basis.

A fall in May imports over April and a downward revision of our estimates for local production are behind the fall to just 2% growth compared with 6% growth in the January-April period.

If 2% ended up being full-year growth, and I see this as perfectly possible, consumption would be around 1.4m tonnes less than our base case forecast in the ICIS Supply & Demand Database. Two per cent would also be the lowest annual growth since 2012.

As later blog posts will detail, it is the same pattern in acrylonitrile butadiene styrene, expandable polystyrene and styrene butadiene styrene. January-May demand growth remained low with no realistic prospects of major recoveries.

This is not the end of the world as Chinese demand growth is still positive and will remain positive in 2019 and 2020. But for those companies that have added capacity on assumptions of much higher growth, it might end up feeling a little like the end of the world.


President Trump's Vietnam warning threatens more polyethylene disruptions


Just to stress  that, as always, what follows are my own personal views and not...

Learn more

China PE overstocking at nearly a million tonnes as demand weakens, competition intensifies


By John Richardson MEASURING petrochemicals and polymer inventory levels in Chin...

Learn more
More posts
Global polyethylene demand in 2020 at risk of 2.4m decline because of coronavirus

By John Richardson I AM a bit confused this morning following some excitement about the Chinese deci...

Coronavirus: Global polypropylene demand in 2020 could fall by 2.6m tonnes over last year

By John Richardson SOME GOOD news might be that official Chinese state media announced that the numb...

Coronavirus threatens 2.9m tonnes of China PP demand as uncertainties increase

By John Richardson THE RUMOURS travelled around my contacts, and I am sure many of your contacts, fo...

More than 3m tonnes of Chinese polyethylene demand at risk from coronavirus

    By John Richardson THE GOOD news is that medical experts believe the novel coronavirus...

Coronavirus: Global polyester chain faces major production cuts, shortages and cost increases

By John Richardson A GREAT example of the extent to which global supply chains are exposed to China ...

Coronavirus: Global polyolefins cutbacks seem inevitable on major China demand loss

We all hope that the coronavirus outbreak will soon be brought under control, that’s the main ...

Why coronavirus will be a much bigger deal for petrochemicals than SARS

By John Richardson THE WORLD was very different in 2003 when SARS struck. Back then, China accounted...

China 2020 polyethylene demand 4.1m tonnes lower on single-use plastics ban and coronavirus

By John Richardson CHINA was supposed to be the one polyethylene (PE) market we could all depend on ...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more