By John Richardson
THE CHART BELOW shows estimates of the losses made by eight of the biggest high-density polyethylene (HDPE) exporters to China in H1 2023 versus the same period last year.
The maths is very simple if you have access to the ICIS data. I multiplied average China CFR HDPE prices across three grades by the number of tonnes the China Customs department reported that the country had imported from the eight countries during the two six-month periods.
These sales estimates do not consider any of the confidential discounts or premiums off the ICIS price assessments for the three grades. But while the exact numbers are likely to be different, the direction of travel is clear during the worst downturn that the global polyolefins industry in general has probably ever seen.
Total estimated losses by these eight exporters came to $1.1bn.
Here is a slide showing the estimated China HDPE sales winners in H1 2023. Together, and again based only on our headline price benchmarks, the US and Canada gained $423m.
In volumes, we can see how the US and Canada gained market share in China at the expense of other big exporters.
Among China’s top ten sources of imports, in volume terms the US saw the biggest shift in its favour as its year-on-year percentage share of the total market jumped to 13% from 3%.
As you can see, Iran, South Korea, Saudi Arabia and the United Arab Emirates (UAE) all saw big drops in imports recorded by China Customs. Iran was down by 42%, South Korea 39%, Saudi Araba 39% and the UAE 25%.
China’s total imports of HDPE in H1 this year dipped to 2.4m tonnes from 2.9m tonnes in H1 2022 on the rise in local capacities and what could be negative demand growth in 2023.
Qatar was among the countries that gained market share and yet its gains were insufficient to cancel out the negative impact of lower pricing. The average CFR China HDPE price in H1 2022 was $1,151/tonne versus $976/tonne in the first half of this year.
The next chart is also very useful in beginning to work out where the big HDPE exporters stand globally.
The big overall increase in US HDPE exports year-on-year in January-May likely reflects the forecast 7% increase in local capacity in 2023 versus 1% domestic growth.
The US needs to export 45% of its PE production in general to hit operating rates of 90%. The logistical challenges that held up exports in 2022 – shortages of trucks, railcars and warehouse space – seem to be largely over.
As you can see, Saudi Arabia and Iran’s exports were substantially down year-on-year in January-May 2023 and January-June 2022 respectively.
We must be cautious of drawing the conclusion – with probably the exception of the US because of the size of its increase – that the regions have raised their exports in 2023 will have enjoyed year-on-year global revenue gains.
Lower pricing globally, not just in China, could have negated the total export gains made by Qatar, South Korea, Canada, Thailand and Taiwan
Why we are in this crisis
What applies to HDPE applies to low-density (LDPE), linear-low-density PE (LLDPE) and polypropylene (PP), as I shall detail in later posts. The estimated losses made by exporters to China in H1 2023 far outweigh the estimated gains.
And, as I did with PP last week, next week I will look at HDPE and later LDPE and LLDPE to estimate how much lower global capacity would have to be to bring operating rates back to historic averages.
This crisis is, in my view, mainly about getting China wrong as the ICIS data in last week’s PP post confirms. I cannot see any other logical conclusion. The consensus failed to consider the effects of the end of the debt bubble and demographics. The chart below offers a summary of the effect of these factors.
The slide below just looks at HDPE, but it is the same pattern in all the major polymers. It shows the three events, now history, that led to China’s per capita consumption diverging from the rest of the developing world from 1992 onwards.
China’s population of 1.4bn consumed 17.3m tonnes of HDPE in 2022 versus the 17.7m tonnes consumed by the rest of the developing world’s 5.4bn people.
As with the other polymers, this disproportionate share of demand, even discounting the amount of HDPE used to make China’s exports, means that China’s demand growth could well fall to the low single digits over the long term. It might even go negative.
Today’s record levels of global HDPE oversupply are largely explained by this trend already being underway. It is what it is and can surely only be fixed by major capacity rationalisation.