Home Blogs Asian Chemical Connections Why China’s HDPE net imports could average just 700,000 tonnes per year in 2024-2030

Why China’s HDPE net imports could average just 700,000 tonnes per year in 2024-2030

China, Company Strategy, Europe, European petrochemicals, India, Middle East, Oil & Gas, Olefins, Polyolefins, Singapore, South Korea, Taiwan, Thailand
By John Richardson on 08-Mar-2024

By John Richardson

THE WORD “autarky” is defined as meaning a country or a state that achieves “economic independence or self-sufficiency”. In terms of petrochemicals, China set its stall out to achieve this in 2014 and by 2030, I believe this will have been pretty much achieved.

Of course, exports of finished goods will remain hugely important for the Chinese economy, perhaps increasingly to non-Western countries.

An indication of this could be the increase in January-February 2024 exports to Russia and Southeast Asia. This raises the important question of whether China can export sufficient higher-value exports in order to escape its middle-income trap given most of the demand for these exports is in the West.

But I am distracting myself. To return to the main point of this post, the big petrochemical exporters that have become so heavily dependent on China as an export destination need to prepare for the scenario where China does become pretty much self-sufficient by 2030. Several senior contacts I speak to working for the major exporters believe this will happen.

We also need to address the questions of whether in the event of this happening, China would also become a major exporter of the petrochemicals in which it is still in big deficit: High-density polyethylene (HDPE), low-density PE (LDPE), linear-low density PE (LLDPE), polypropylene (PP), paraxylene (PX) and mono-ethylene glycol (MEG).

“We have been told by our China team that Beijing plans to be near to balance positions in these products by 2030. There’s no intention to be a big exporter,” one source told me.

For argument’s sake, let me use this comment as the basis for today’s data crunching. But we again need to prepare for the other scenario of China becoming a major exporter.

Three scenarios for China’s HDPE net imports in 2024-2030

I will start with HDPE in this post and then provide scenarios for the other products in which China is in deficit in later posts.

The ICIS Base Case, in our Supply & Demand Database, sees an average China HDPE operating rate of 72% between 2024 and 2030 and average demand growth of 3%. This would lead to net imports averaging an extremely healthy 7.6m tonnes a year, a big improvement on last year’s actual net imports of 4.7m tonnes.

I highly recommend that you speak to our excellent team of China analysts to understand more about this scenario, and more in general about the China market. They have great on-the-ground knowledge about what’s happening in the world’s most important market. This kind of additional support brings our data alive.

I could be wrong, of course, but I view things differently. I see differing of view as essential so we can build a range of solid scenarios. I think we can all agree that given the much more uncertain environment we operate in, scenario planning has become even more important than it was before.

My two downside scenarios are as follows:

  • Downside Scenario 1: An average 82% operating rate, an additional 5.2m tonnes/year of unconfirmed capacity comes on-stream and 3% average demand growth. Annual average net imports total 3.8m tonnes.
  • Downside Scenario 2: An average 88% operating rate, an additional 5.2m tonnes/year of unconfirmed capacity comes on-stream and 1.5% average demand growth. Annual average net imports total just 700,000 tonnes.

Note that unconfirmed capacity is listed in the ICIS Supply & Demand Database with a question mark next to it. The capacity is therefore not included in our total capacity estimates.

Why do I see these alternative outcomes as possible?

Firstly, as regards operating rates you can argue that China’s new HDPE capacity will be super-efficient in terms of scale and upstream integration, including perhaps advantaged supplies of crude into refineries.

There is a potential “win-win” here. The oil-to-petrochemicals majors, especially Saudi Aramco, are of course keen to underpin production levels given the threats to long-term global crude demand from electrification of transport, biofuels and greater fuel efficiency. China is the world’s biggest crude importer.

Further, as I have long argued, petrochemical operating rates in China have historically been a political as well as an economic decision. As mentioned at the beginning, China made the decision in 2014 to push towards complete petrochemicals self-sufficiency.

Our base case demand growth estimate of 3% per annum between 2024 and 2030 is perfectly reasonable and well thought-out, as it reflects the big turn of events since the “Evergrande moment” in late 2021. Growth of 3% would be hugely down from the 12% average annual growth between 1992 and 2023 during the Petrochemicals Supercycle, which was mainly driven by events in China.

I have therefore stuck with 3% demand growth in Downside Scenario 1 while raising the operating rate to 82% for the reasons described above.

But I believe we need to go further to achieve proper scenario planning. Downside Scenario 2 therefore takes demand growth down to 1.5% and raises the operating rate to 88% – the same as the actual operating rate in 1992-2023.

The impact of the three scenarios on global net imports in 2023-2040

The above chart shows the average annual size of total global net imports (among the countries and regions that are forecast to import more than they export) in 2024-2030, under these three different scenarios.

I assume under all the outcomes that net imports for the countries and regions other than China would be the same as under the ICIS Base Case.

The ICIS Base Case would see average annual net imports at 18.3m tonnes, Downside 1, 14.5m tonnes and Downside 2, 11.3m tonnes.

Why such big differences? Because in 2023, China accounted for an estimated 36% of total global net imports. In second place was Asia and Pacific, including South Asia and Southeast Asia at 24% followed by Europe at 12%.

Conclusion: China petrochemicals could become “unto itself”

The phrase, “unto itself” is interpreted as meaning something that “has special qualities that it does not share with other, similar things, and so it should be treated or understood differently from those other things”.

During the 1992-2023 Petrochemicals Supercycle, China was of course the opposite of this as it became the major driver of global demand and trade.

But I now see a very real possibility, as mentioned above, of China becomes pretty much petrochemicals self-sufficient. This could also be accompanied by very limited exports by China of HDPE, LDPE, LLDPE, PP, PX and MEG.

An unto itself China would mean the country’s demand trends would have little relevance to overseas companies except for those which have invested in joint ventures in China.

Pricing markets would be upended. No longer would landed-China prices be as relevant as China’s import volumes would be much lower than they are today.

And demand patterns in and trade flows to the world’s remaining net import regions and countries – Europe, Turkey, Africa, South & Central America, Asia and Pacific and the Former Soviet Union – would become much more important.

In short, the petrochemicals world would be pretty much turned on its head. Are you prepared for these eventualities?