Home Blogs Asian Chemical Connections China’s HDPE imports from the US surge more than triple as South Korea and Saudi Arabia and the UAE lose ground

China’s HDPE imports from the US surge more than triple as South Korea and Saudi Arabia and the UAE lose ground

China, Middle East, Naphtha & other feedstocks, Olefins, Polyolefins, Singapore, South Korea, Taiwan, Thailand, US
By John Richardson on 19-Jul-2023

By John Richardson

THE ABOVE table follows the one I published in my 11 July blog post, which showed a similarly dramatic shift in linear low density polyethylene (LLDPE) imports by China in favour of the US during the first five months of this year.

As China’s overall high density PE (HDPE) imports fell to 2m tonnes in January-May 2023 from 2.5m tonnes during the same period last year, the US’s share of China’s import market jumped to 13% from 3%.

Year-on-year imports from the US rose by 335% to 268,892 tonnes. Imports from Saudi Arabia fell by 27% to 413,176 tonnes with the United Arab Emirates (UAE) down by 26% to 388,516 tonnes and South Korea 28% lower at 263,711 tonnes.

But the biggest losses were by Iran which saw its imports by China fall by 44% to 231,166 tonnes.

The ICIS Cost Curve analysis of HDPE plant-by-plant economics in the Middle East suggests that several of the Iranian facilities are far to the right of the region’s cost curve (see the chart below).

Plants in Saudi Arabia, Qatar, the UAE and Kuwait are all, however, in strong positions. This suggests they are in good positions to battle hard in what is a declining China HDPE import market, at least in the short term.

The US is also in a strong position as this next ICIS Cost Curve chart illustrates.

Compare this with the ICIS HDPE Cost Curve below for northeast (NE) Asia.

The charts show that a far larger percentage of Middle East and US producers, compared with NE Asia, have operating costs well below the weekly ICIS price assessments for each region.

If you hover over the charts on ICIS Clarity, you can see the names of each producer and their variable integrated and fixed cost positions versus the weekly ICIS price assessments on the right.

Our industry average margin product does, however, show that NE Asia’s integrated variable cost margins have shifted into positive territory since March. But this is due to declines in naphtha feedstock costs on lower oil prices exceeding declines in HDPE prices and co-product credits.

Searching for the next upswing  

At some point, petrochemical markets will turn. They always do. Recoveries often happen faster than expected.

But I believe that China cannot ride to the rescue of the industry as it did during the last downturn in 2009 because of debt and demographic issues.

“China’s economy lost momentum in the second quarter, with gross domestic product expanding 0.8 per cent against the previous three months as falling exports, weak retail sales and a moribund property sector weighed on growth,” wrote the Financial Times in this 17 July article.

New economic stimulus in H2 2023 might improve China’s petrochemicals demand, which in the case of HDPE could be heading for a 3% decline in 2023 over 2022. But I believe that any recovery will likely be only moderate because of China’s long-term challenges.

Meanwhile, as the chart below reminds us, China’s HDPE self-sufficiency is increasing. It is the same in several other products.

We must adjust to the new China. This is going to place further pressure on the naphtha or liquid-based producers in the whole of the ethylene value chain.

Further plant closures and rate cuts seem inevitable to bring the market back into balance during a period when lower-cost ethane-based capacity in the US continues to expand. The chart below again uses the example of HDPE.

The US needs to export 45% of its PE production in general to achieve operating rates of 90%, said ICIS Chemicals Business editor, Joe Chang in this 26 March article.

US HDPE capacity is scheduled to increase by 7% in 2023 with domestic demand forecast to rise by just 1%.

The end of logistics constraints that had hindered polymer exports in general combined with the new HDPE capacities and the US’ low-cost position suggests the following.

We will know when markets are back in balance from the ICIS data on spreads, industry average margins and cost curves. When these data return to historic averages for the liquid players, the recovery will be underway.

And we must remember that there are plenty of other big import markets aside from China in HDPE and other products.

The chart below shows the estimates, from the ICIS Supply & Demand Database, of the size of the big net import markets aside from China. But these estimates were made at the start of 2023 and need to be updated, based on the actual trade data, available from our database.

Conclusion: Linking data sets and regions together

You MUST think global and constantly analyse the ICIS pricing benchmarks across all the regions to, say, determine whether it is better to sell in Turkey versus India.

And, of course, you need sufficient demand as well as the right price! Constantly updated demand, supply and import and export data is essential to determine the best markets by volume.

Then this must be linked with spreads, margins and cost curve analysis to work out your position as a producer versus the industry average and your competitors.

“Come on,” I can hear you say, “Tell me something new”. True. But in this downturn, you need to double down on this analysis in an attempt to get every sales and production decision right.