Home Blogs Asian Chemical Connections Global PE demand in 2024 could have been 74m tonnes lower if incomes and population drove the market

Global PE demand in 2024 could have been 74m tonnes lower if incomes and population drove the market

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By John Richardson on 25-Mar-2024

By John Richardson

IF I HAD a dollar for every-time I’d heard that population and income growth are the defining factors behind the petrochemicals demand boom of the last 30 years, I would be retired by now.

I could be sitting on some desert island, watching plastic waste wash onto what was once a pristine beach.

But the historic data doesn’t appear to support the accepted wisdom on population and income growth, as I discovered while preparing for a polyolefins training and markets day that I’m delivering in Vienna on 9 April, the day before the ICIS World Polyolefins Conference.

Let’s start at the beginning as this is a very good place to start, to quote The Sound of Music.

It’s important that we divide petrochemicals and polymers demand into three mega-regions – the Developed World, The Developing World ex-China and China itself.

The reason is that these three regions have had very distinct historical demand patterns, with their patterns of demand likely to also diverge in the future.

Using polyethylene (PE) as an example, which is the subject of the rest of this post, Developed World PE demand back in 1992 was 73% of the global total.

This was despite the Developed World (Canada, the US, Australia, Europe, Japan. New Zealand, Singapore, South Korea and Taiwan) only comprising 19% of the global population.

Way back in 1992, we could therefore have identified that populations might not have been as big a factor in determining petrochemicals demand as was commonly thought.

As the Developed World drove 73% of global demand, this left the Developed World ex-China with just a 19% of global demand despite its 59% of the global population.

The Developing World ex-China consists of Africa, Developing Asia & Pacific, the Former Soviet Union, the Middle East including Turkey, and South and Central America including Mexico.

“But” I can hear you say, “back in 1992 the rich world was much richer than everywhere else which explains why its PE consumption was so much higher, as petrochemicals demand is a function of wealth.”

This is right, of course, raising these points: As petrochemicals demand is a function of wealth – with wealth involving the value of assets as well as incomes – how do we calculate the effects of wealth? How do we balance the importance of wealth versus populations?

China accounted for just 7% of global PE demand in 1992 and yet its share of the global population was 22%. Like the Developing World ex-China, therefore, China itself was punching far below its population weight.

The Petrochemicals Supercycle and its China distortions

My starting year is 1992 as this is when we entered the Petrochemicals Supercycle, an unprecedented and I believe never to be repeated period of very strong demand growth.

What started the Supercycle were the economic reforms introduced by Deng Xiaoping following his tour of China’s southern provinces, called, not surprisingly, his Southern Tour.

Deng instigated a series of economic reforms that encouraged private investment, including from overseas. Investment poured into export-focused manufacturing.

This investment was supported by big government spending on improvements in ports, roads other infrastructure and electricity supply. These virtuous conditions combined with what was then a very youthful population to result in China taking a bigger global share of exports (a youthful population meant low labour costs).

Here we have more evidence that we cannot simplify petrochemicals demand growth as mainly a function of the growth in populations and income.

Other factors identified about are economic liberalisation, local and foreign investment in manufacturing, government spending on infrastructure and demographics.

Next came China’s admission to the World Trade Organisation (WTO) in late 2001 that removed the tariffs and quotas that had restricted China’s exports to the West. This enabled China to take even more advantage of what remained youthful population by boosting its share of manufactured exports.

By 2009, China’s population was already ageing as births per woman had first fallen below the population replacement rate of 2.2 in 1999. They have stayed there ever since.

But in response to the Global Financial Crisis, and instead of addressing this growing demographic challenge by boosting domestic consumption, the Chinese government created probably the world’s biggest-ever investment bubble.

The investment bubble went pop in September 2021 with the collapse of property developer Evergrande.

Real estate is worth some 29% of China’s GDP, the highest in global economic history, and cannot be reinflated because of the scale of bad debts – and because there isn’t enough demand for housing. Because of China’s ageing population.

This tells us that a further factor to consider when assessing petrochemicals demand growth, especially for an export-focused economy such as China, is trade liberalisation.

The chart below shows the percentages mentioned earlier of 1992 PE demand versus populations in and compares these percentages with 2024. You can also see PE demand for the three mega-regions in millions of tonnes – along with their populations in brackets – in 1992 and 2024.

In 2024, ICIS forecasts that the Developed World’s share of PE demand will collapse to just 31% from 73% in 1992. This is despite the region’s share of the total global population only declining to 14% from 19%.

Relative to China, the much more populous Developed World ex-China is expected to underperform in 2024. Despite a 68% of the global population, we expect the region to drive only 35% of global PE demand.

And just look at China!!:

  • As mentioned earlier, in 1992 it accounted for 22% of the global population and 7% of global PE demand. This year, we expect China’s share of the global population to have fallen to 18%, but it will account for 34% of global PE demand. This would be just a percentage point behind the Developed World ex-China, despite the Developed World ex-China’s population forecast to be at 5.3bn versus China’s 1.4bn.

The next chart will be familiar to regular readers of the blog, as it is an updated version of the chart I first provided in June last year.

The chart shows how China’s PE per capita consumption began to grow much more quickly than the Developing World ex-China from 1992, after Deng’s economic reforms.

You can also see the pick-up in China’s growth following WTO membership and the biggest inflection point – the surge in China’s per capita demand growth following the launch of the 2009 economic stimulus package.

Meanwhile, growth in the Developed World has been flat since 2001.

“But you have to discount how much of PE is actually consumed in China on a per capita basis as opposed to exported, either as packaging for finished goods or as components of finished goods,” I can again hear you say.

Absolutely and even more so in more industrial polymers such as polypropylene (PP). The importance of exports further underlines the point that PE demand growth is far more than just a function of income and population growth.

Based on IMF data, China’s per capita income will average $13,156 in 2024 with per capita PE consumption at 29 kilograms. And yet the Developed World despite a per capita income of $50,83 will only consume 4kgs more at 33kgs.

The Developing World ex-China’s per capita income of $9,730 will be 74% of China’s. But the region’s per capita PE consumption of 8kgs will be 72% lower than China’s – and this is despite a much bigger population.

“But this is down to China’s domination of exports,” you may repeat. Yes and no.

The export share of China’s GDP has fallen since 2010, as my 4 March 2024 blog post discusses. Meanwhile, investments as a percentage of GDP – measured as fixed capital formation – have increased since 2009 more than the growth in household consumption.

The housing bubble had a hugely positive wealth effect. Think of the PE plastic packaging for furniture, refrigerators and cookers to kit out new homes, the PE used to make kitchen utensils and all the PE demand driven by the extra wealth from rising real-estate prices.

As I’ve discussed before, the end of the investment bubble and China’s ageing population mean that its PE and other annual petrochemicals demand growth is likely to fall to the low single digits compared with the double digits common in 1992-2021.

We are also likely to see de-liberalisation of trade as we move to a more protected world, and the West’s split with China increases. This will make it harder for China to export its way to strong GDP growth.

The Petrochemicals Supercycle’s other features

Walk down any supermarket aisle in 1992 and there was far less of an explosion of colour and attractive designs of packaging compelling you “to pick me up and buy me” than we see today. Innovations in packaging for aesthetic reasons have helped drive PE and other polymers demand.

Then think of all the positive societal benefits of PE from better medical packaging to improved food safety. These innovations have further helped to support lobal PE demand.

During most of the Petrochemical Supercycle period from 1992 to 2021, nobody worried too much about how much PE they were consuming – and there were few product bans and redesign and re-use initiatives. Not now, of course.

We must also consider the favourable role that demographics played in supporting PE demand during the Supercycle and not just in China. This was the era of the Babyboomers, the wealthiest and youngest demographic cohort that the world has ever seen.

Most of the world’s population is ageing as the chart below reminds us. The chart usefully divides the G20 group of countries into “Rich but Old”, “Poor and Ageing” and “Poor & Young”.

The next chart shows how some 70% global PE demand was driven by the G20 countries from 1992 until 2023.

The Old and Rich countries at least have reasonable social safety nets, with the notable exception of the US because of its healthcare system. But when you are retired you are usually living on reduced means and have already bought most of the things that you need.

China is Poor and Old. This raises doubts over whether it can afford to improve poor healthcare and pension systems in order to unlock more domestic consumption. Will the transfers of wealth necessary to significantly boost domestic consumption, even if they are affordable, be politically possible?

Or it will its economy instead pretty much stagnate also because, as discussed earlier, the export route to maintaining GDP growth at 4-5% per year isn’t possible?

The 17% of global PE demand accounted for by the Poor and Young G20 countries offers hope, as does the rest of the Developing World ex-China.

But erratic climate patterns were less of an issue during the Supercycle. We must consider how increasing floods and droughts will affect PE and other petrochemicals demand over the next 30 years.

This could be a particular problem for the Developing World ex-China because of its equatorial regions, because a high proportion of its very poor working population work outdoors – and because it may lack the financial means to mitigate climate change.

Conclusion:  Proving my case with the data

So, back to my original point. Let’s look at the data for income and population growth, imagine a PE world where these two factors did entirely drive consumption and compare the differences with reality.

I know this is extreme because, as I said at the beginning of the post, the accepted was only that incomes and populations were defining factors. This is obviously different from the only factors.

But such are the patterns of the data in the chart below that I am left with the conclusion that income and population growth can have only played minor roles in the PE demand story over the last 30 years.

The alternative demand numbers for 2024 were calculated by taking the 1992 data as a starting point – the beginning of the Petrochemicals Supercycle.

Percentage increases for populations and incomes were then added together for the three regions (see the table in the above), multiplied by the 1992 demand numbers.

On this basis, global PE demand would have been just 52m tonne in 2024 versus the ICIS forecast of 126m tonnes.

The China market would have been just 10m tonnes versus 43m tonnes; the Developing World ex-China 13m tonnes versus 44m tonnes and the Developed World 29m tonnes versus 38m tonnes.

A discussed earlier, many of the other favourable influences on PE demand during the Supercycle may have gone away, requiring a reset of business models.

For more information on the Workshops necessary to rebuild these business models – and for demand forecasts that consider all the complexities – contact john.richardson@icis.com.