Home Blogs Asian Chemical Connections HDPE and PP prices outside China continue to fall towards China levels

HDPE and PP prices outside China continue to fall towards China levels

Business, China, Europe, European economy, European petrochemicals, Middle East, Olefins, Polyolefins, Singapore, South Korea, Taiwan, Thailand
By John Richardson on 19-Sep-2022

CHINA WILL ACCOUNT for 18.8% of the world’s GDP based on purchasing power parity in 2022, according to the IMF’s April 2022 World Economic Outlook. This would be an increase from only 8.1% two decades ago when the US and the EU were far ahead of China in economic outlook, said Statista in a June 2022 article.

“The gap between China, the US and the EU will likely widen over the next few years, as the economic outlook for the latter two is cloudy with a chance of recession, while China is expected to continue growing at mid-single-digit growth rates,” said Statista.

Don’t bank on this conventional wisdom coming true because of the immediate impact on China’s economy of deleveraging real-estate and the zero-COVID policies. Long-term threats centre on China’s attempts to build a new economic growth mode. We don’t know if this will work.

We are also in entirely uncharted territory when it comes to demographics. The rapid ageing of China’s population is occurring before China has become a fully developed economy. Will China have the means to meet big increases in healthcare and pension costs?

It is thought that China’s population may have peaked last year, well ahead of previous predictions that this wouldn’t happen until the 2030s.

I digress somewhat from polyethylene (PE) and polypropylene (PP) and the main purpose of today’s post, which is to launch two new price-comparison indices, using our ICIS Pricing historic data.

But the above comments are connected to the main thrust of today’s post as polyolefins markets in every country and region are affected by these economic realities.

China is the world’s biggest driver of polyolefins global demand. It is the same in everything else downstream from chemicals, reflecting China’s much-increased role in the global economy highlighted in the IMF in April report.

Taking high-density polyethylene (HDPE) as an example, China’s demand in 2022 looks set to fall by 4%, which would be the largest decline since 2000. PP demand is heading for a 1% decline, which would be the second-worst performance since 2000.

China’s voracious economic growth has also made it the world’s biggest importer of oil, gas, chemicals and polymers.

The latest data suggest that China’s net HDPE imports will be 5.5m tonnes in 2022, down from 6.4m tonnes in 2021 and 8.7m tonnes in 2020. This year’s PP net imports look set to fall to 2.4m tonnes compared with 3.4m tonnes in 2021 and 6.1m tonnes in 2020.

Lower domestic consumption in China and falling imports (the result of the lower demand and increasing Chinese self-sufficiency) is adding to the global oversupply resulting from the global inflation crisis.

The economies in which overseas polyolefins companies operate are also being damaged by the China slowdown. Think of Germany’s dependence on high-value exports to China and Vietnam’s dependence on making lots of cheaper goods for export to China and elsewhere.

The Great Price Deflation Appears to be Underway

Note that I will be providing weekly updates of the pricing charts below.

Today’s first chart shows China CFR (Cost & Freight) HDPE film-grade prices versus average film-grade prices in northwest Europe (NWE), southeast Asia (SEA) as a whole, Vietnam specifically, India, Pakistan and Turkey.

As you can see, average pricing in these countries and regions has fallen closer to Chinese levels since April this year. This followed a climb to record-high premiums which began in January 2021.

Record-high premiums were the result of stronger economies outside China and the limited ability of Asian and Middle East exporters to move oversupply out of northeast Asia because of the surge in container-freight costs.

Container-freight costs have fallen in 2022 as the chart below tells us, showing the China-to-Europe route.

Now let us look at HDPE film in terms of the monthly price premiums/discounts between the other countries and regions and China.

Premiums reached an all-time high China at $354/tonne in April 2021, There we a slight dip and then a return to exactly the same peak premium of $354/tonne in April this year. Since then, premiums have declined sharply, In September this year up to 16 September, they were at $136/tonne.

Let us next look at average PP injection grade prices for the same countries and regions compared with again China.

Here is the chart showing premiums/discounts,

Premiums peaked in November 2021 at $389/tonne, an all-time high. Premiums fluctuated then narrow range before the sharp retreat from April this year onwards. In September 2022 up until 16 September, the premium was $154/tonne.

The value of ICIS Pricing historic data

Over the last 20 years, a booming China economy has kept chemicals markets snug. Global supply has struggled to keep with demand, resulting the “China price” most of the time positively underpinning pricing overseas.

But I am concerned that China could export more and more chemicals price deflation, either directly through its exports of products such as HDPE PP – and indirectly via the impact of China’s economy on other economies

I wish it were different. But I sadly believe that there are exceptionally difficult times for the chemicals industry in general because of the big changes taking place in China and global inflation.

But you don’t have to believe me. Instead, just follow these weekly charts.

These four charts show the value of our pricing data, not only for chemicals producers and buyers but also for companies and investors further down the manufacturing value chains. The reason for this wider value is because chemicals are, of course, the basic building blocks for just about everything we buy, so are excellent barometers.