By John Richardson
AS IN high-density polyethylene (HDPE), the chart below shows how the US gained market share in H1 2023 in the key China LLDPE market at the expense of Iran, Singapore, South Korea and Thailand. Other winners included Canada, which, like the US, is an advantaged feedstock player.
China’s imports from the US increased year-on-year in H1 2023 by 220% as imports from Iran fell by 54%. Imports from South Korea were 13% lower.
The sharp fall in Iran’s market share in China could be because of a very heavy maintenance season in the Middle East in PE in general during H1 this year.
As you can see from the table, China’s total LLDPE imports increased year-on-year in H1 2023. I believe this likely reflects overstocking.
ICIS estimates – as not all the trade data is available yet – that total Middle East PE exports were down by 15% in H1 2023 versus the first half of last year. North American exports, including the US and Canada, rose by 17%.
The chart below confirms this trend. Total Saudi Arabia LLDPE exports in January-April 2023 versus the same months last year were, for example, down by 292,908 tonnes. Big declines also occurred in South Korea and Singapore exports year-on-year in January-June.
Focusing just on LLDPE again, we can estimate lost H1 2023 sales in China versus average H1 1999-2022 sales. Total estimated losses amounted to $594m among some of the big global producers.
Even though advantaged feedstock producers in Saudi Arabia and the United Arab Emirates sold more tonnes in China in H1 2023 versus the first half of last year, the net effect of much lower prices during this downturn appears to have resulted in China sales losses.
We can do the same exercise on a year-on-year basis. Here, total export losses among some of China’s biggest import partners came to $762m.
The same maths identifies the winners, starting again with H1 2023 versus average China sales in H1 2019-H1 2022. Total estimated gains came to $532m.
And in a year-on-year basis, we again see that the US came out as the biggest winner. Total sales gains among the winning producers were $546m.
These are shockingly bad numbers from an Asian and Middle East perspective could and should have been anticipated, as the ICIS data on LLDPE spreads and margins told us we were heading in this direction from late 2021 onwards.
The decline in LLDPE spreads and margins reflects the end of China’s real estate bubble and the sharp fall in its exports of manufactured goods. The export slowdown has been caused by the cycle out of spending on goods and into services and decades-high levels of inflation.
A great buying opportunity
These are almost perfect buyers’ market as this blog post, my earlier blog post on HDPE and my LinkedIn post on polypropylene (PP) demonstrate.
Converters and brand owners should have saved many millions of dollars on resin purchases since the downturn began in January 2022. If not, the CFOs and CEOs of these companies need to be asking their procurement teams very searching questions – as do investors.
The converters and brand owners also face a major risk of supply interruption that they must constantly monitor. As I have detailed in the case of PP – and I shall detail in HDPE and LLDPE in later blog posts – substantial capacity shutdowns and/or postponements of new projects will be necessary to return producer operating rates to normal levels.
Converters and brand owners therefore need to make use of tools such as the ICIS Cost Curves (see the LLDPE chart below as an example) to discover whether their suppliers are to the far right of our curves and are thus at greater risk of being forced to shut down.
Hover over different points of the charts on our dashboard and you can see the names of different producers, their capacities and cost positions.
The problem with the above chart is that with the C4 LLDPE film grade at $945/tonne up until 11 August, ICIS assessed that nearly all northeast Asian producers were losing money.