By John Richardson
DO YOU WANT the good news or bad news first? This is of course a rhetorical question because I cannot hear what you are saying.
I have therefore independently decided to give you the good news first: ICIS forecasts that only 33% of total global net imports of polypropylene (PP) will be driven by China in 2021-2031 versus 66% in the case of high-density polyethylene (HDPE).
This chart shows our estimates of global net PP imports in millions of tonnes in 2021-2031 amongst the countries and regions that are expected to import more than they export.
But of course, everything in our petrochemical world depends on how you interpret the data!
A reason why China is estimated to account for a 50 percentage point smaller share of global net imports in PP compared with HDPE is because China will, even under our conservative base case assumptions, become much more PP self-sufficient over the next decade.
Let us look on the bright side again, though. This 33% share of global PP net imports in 2021-2031 compares with 41% in 2020. So, not that much of a potential decline if our base case proves accurate.
Our base case, though, might not be accurate as the chart below on the left illustrates. This is an updated version of the chart I provided you with in May this year, which you can see on the right for the sake of comparison.
Our previous base case had assumed that this year’s net imports would fall to around 4.7m tonnes from 2020’s 6.1m tonnes. Now, though, our base case assumes a fall to 3.7m tonnes of net imports.
Under both downside cases, I expect around 3.3m tonnes of net imports in 2021 to be more likely, given the decline in imports so far this year and exports that I believe are on track to this year total of 1.3m tonnes. This would be up from just 430,000 tonnes in 2020.
Either 4.5m tonnes of net imports or 3.7m tonnes of net exports in 2031
Another reason for my lower estimate for this year’s net imports is that I see China’s 2021 demand growth over 2020 being only in the region of 2% to a market of 32.7m tonnes. This compares with our base case assumption of 8% growth to consumption of 34.5m tonnes.
Now onto more details of the new Downside 1 and Downside 2 scenarios:
- Downside 1 includes, as I said, just 2% demand growth this year. But between 2022 and 2031 I stick to our base cases for annual growth. This, though, still lowers average growth during the whole 2021-2031 forecast period to 3.5%, from our base case of 4%. Just look at the difference this makes! Even without any unconfirmed capacity going ahead – which is the same assumption as our base case – Downside 1 would see net imports fall to only 2.1m tonnes in 2031. This compares with our base case of net imports of 4.5m tonnes in 2031.
- Downside 2 involves the same demand growth as Downside 1, but also includes 9.8m tonnes/year of unconfirmed capacity listed in our ICIS Supply & Demand Database. This is capacity where to date no feedstock, financing or approvals have been obtained. Note that this compares with our earlier estimate of 8.5m tonnes/year of unconfirmed capacity. Under this scenario, China becomes a net exporter in 2026. Net exports reach 3.7m tonnes in 2031.
You will notice that under both downside scenarios, I have stuck with our new base case for operating rates, which is a 2021-2031 average of 83%. This is much lower than my earlier assumption of around 90%.
This is because the combination of the lower demand growth and extra unconfirmed capacity could be sufficient to push China into a big net export position after 2026.
It thus seems unlikely that China will run its plants at more than 83%. The remaining available global import markets would not be big enough to justify a higher average operating rate.
The need for a diversified sales strategy
As I did with HDPE last week, let’s look at our estimates of global net imports in 2021-2031 minus China to make the data easier to analyse.
Asia and Pacific’s net imports are forecast to increase from 1.4m tonnes in 2021 to 3.7m tonnes in 2031, overtaking Turkey as the biggest market. But Turkey is expected to remain an important destination with its net imports rising from 1.9m tonnes in 2021 to 2.7m tonnes in 2031.
The other three net import markets – Africa, Europe and South & Central America – are forecast to see their combined net imports increase from 2.5m tonnes in 2021 to 4.7m tonnes in 2031.
These alternative markets to China add up to a very big opportunity. But Asia and Pacific for example includes many different countries (the region includes the Indian subcontinent and southeast Asia) and is therefore a vastly more complex region to navigate than China.
And just think of the challenges of selling to Africa with its many different countries and currencies, custom regulations and weak infrastructure.
But PP exporters have no choice but to confront these challenges because, as I have just demonstrated, the outlook for China’s imports has worsened in the space of just a few months.
The countries that are most vulnerable to China’s self-sufficiency are South Korea, Singapore, Taiwan, Saudi Arabia, the United Arab Emirates and Thailand – the six biggest exporters, in order of size, to China.
China may, however, remain a big importer of PP for many years to come. But complacency is the enemy of a good sales strategy. No producer who exports significant volumes to China can afford to not at least plan for diversification into other markets.