Home Blogs Asian Chemical Connections China may see either annual average PP net imports of 4.9m tonnes or net exports of 7.2m tonnes in 2024-2030

China may see either annual average PP net imports of 4.9m tonnes or net exports of 7.2m tonnes in 2024-2030

China, Company Strategy
By John Richardson on 02-Apr-2024

By John Richardson

A DECADE AGO, China made it clear that it planned to push much harder towards petrochemicals self-sufficiency.

The obvious suspects for the self-sufficiency push were high-density polyethylene (HDPE), low-density PE (LDPE), linear-low density PE (LLDPE), polypropylene (PP), paraxylene (PX) and mono-ethylene glycols (MEG).

What made this list obvious was that these were the products where China remained a big net importer.

Ten years ago, it had already moved from being a major net importer to being a big net exporter in polyester fibres and polyethylene terephthalate (PET) film and bottles grades – and was about to make the same move in purified terephthalic acid (PTA).

Doubts were expressed in 2014 that China would be able to significantly raise its self-sufficiency in the six products listed in the second paragraph. This was because of the projected cost-per-tonne economics of proposed local investments.

But China has never just built petrochemical plants for the sake of making money from the plants. Broader economic development has always also been a motive.

And in a world of increasing geopolitical uncertainty, supply security seems to have become a bigger consideration.

Further, refinery-to-petrochemicals complexes have recently been built and will continue to be built in China that are to the left of cost curves.  In other words, the old, “It won’t happen because of cost-per-tonne economics” argument no longer makes any sense.

Think here of the big new privately-owned refinery-to-petrochemicals complexes that came onstream around five years ago – and the many similar complexes added by Sinopec and PetroChina over the last decade.

Then there’s the new wave of joint-venture projects in China involving ExxonMobil, SABIC, Saudi Aramco and Shell etc., and the wholly owned complex being built by BASF.

New complexes involving overseas shareholders will, of course, comprise state-of-the-art facilities.

New plants in general will also tick the lower carbon box. If China were to swing from being a big net importer of PE and PP to a significant net exporter, carbon efficiency will be important because of global Net Zero efforts.

Even if China only becomes close-to-balanced in PE and PP without being a major net exporter, carbon efficiency is important domestically as China has its own Net Zero targets, which are being accelerated.

The big changes since late 2021

Why I only talk about the potential for significant PE and PP exports is that aside from China, there are no other major PX and MEG net import markets.

In both the fibre intermediates, China accounts for 70-80% of total global net imports. This obviously means there isn’t sufficient space for China to switch to being a big exporter.

A decade ago, I warned on the blog that much greater self-sufficiency in PE, PP, PX and MEG was a risk that had to be prepared for through scenario planning.

Now we are the at the point where this could easily happen before 2030, as I’ve discussed in recent posts on HDPE, LLDPE and PX.

I am not saying that almost complete self-sufficiency will happen by that year. Our perfectly reasonable ICIS base case assumptions assume otherwise.

My point is instead that minor changes to our base case assumptions now produce much bigger changes in China trade flows than was the case just two-and-a-half years ago.

I’ve yet to study MEG, but I am sure the pattern will be the same as in HDPE, LLDPE and PX. I have done the data-crunching on LDPE and the patterns are the same, but I have yet to publish post on the polymer.

The increased sensitivity of the data to big swings towards much greater self-sufficiency makes downside planning even more important for the big export countries and regions – the US, the Middle East, South Korea, Singapore, Thailand and Malaysia.

Only two-and-half years ago, you had to make such big adjustments to our base case assumptions on China’s demand growth and operating rates to get to significantly increased rates of self-sufficiency that the adjustments didn’t make sense. Now, just minor changes are required to produce big declines in China’s projected net imports.

Two things have happened since late 2021:

  • The collapse of the property developer Evergrande in September 2021 signalled that China had moved into an era of lower economic and therefore petrochemicals demand growth. I flagged this up at the time and it has now become accepted wisdom. The end of the property bubble, worth some 29% of China’s GDP, has occurred as China’s ageing population exerts more downward pressure on the economy.
  • A lot more new petrochemicals capacity has been added in China.

Let me illustrate the above points by using PP as another example.

A PP world at risk of being turned upside down

The above chart starts on the left with the ICIS Base case for China’s average annual net PP imports in 2024-2030.

We see annual average demand growth falling to 4% in 2014-2030, down from 11% in 1992-2023. This sharp decline in forecast growth reflects the end of the investment bubble and unfavourable demographics.

The ICIS Base Case also assumes an average operating rate of just 72% over the next seven years compared with the long-term average of 86%.

These assumptions would lead to average annual net imports of 4.9m tonnes – higher than actual 2023 net imports of 2.8m tonnes.

I believe there is a risk that petrochemicals demand growth in general in China could fall to 1-3% per year.

For argument’s sake, I assume the mid-point of this range of growth – 1.5% per annum – in Downside Scenario 1. I keep the operating rate at 72%, unchanged from the base case.

The change is dramatic. Instead of average annual net imports at 4.9m tonnes, Downside 1 would see China with average annual net exports of 1.7m tonnes.

The details of this alternative scenario reveal a more complex picture. China would still be a net importer in 2024 and would be just about balanced in 2025 and 2026. It would become a substantial net exporter in 2027-2030.

But what if China were to become a much bigger net exporter through raising its average annual operating rate to 82%?

This is the basis for Downside Scenario 2 where I keep annual average demand growth at 1.5%.

China would swing into net exports from this year onwards. Net exports would average no less than 7.2m tonnes a year in 2024-2030.

Ridiculous? Unfeasible? Probably. Trade tensions might well make it impossible for China to become such a big PP net exporter, thereby compelling it to run its plants at an operating rate a lot lower than 82%.

If China were to become a 7.2m tonnes/year PP net exporter in 2024-2030, this would make it the world’s second-biggest net exporter after the Middle East. This is based on our base case assumptions for Middle East net exports during this period.

And I might be far too pessimistic on demand growth. Perhaps 4% per annum is a much more reasonable number given that it is already substantially down from 11% in 1992-2023.

But also consider this: I haven’t included in the either of the Downside Scenarios the 10.5m tonnes/year of capacity that’s listed in the ICIS Supply & Demand Database as unconfirmed.

Because the capacity is unconfirmed, it Is not included in our base case estimates of capacity between 2024 and 2030.

So, assuming lower operating rates and higher demand growth than in my downsides, China could still be closer to self-sufficiency than we assume in our base case if some of this unconfirmed capacity ends up being built.  

Conclusion: A polyolefins autarky or major exporter

China has pretty much bankrolled the global petrochemicals industry since 1992, the year of Deng Xiaoping’s Southern Tour.

Such was the subsequent strength of China’s consumption growth versus insufficient investment in local capacity that any export-focused petrochemical plant or project became dangerously over-reliant in fortuitous events in just one country. Now our luck has run out.

Petrochemical companies need to plan for these two outcomes (I don’t see any other outcomes as possible):

  1. China becomes a polyolefins autarky. Autarky is defined by Britannica Money as “an economic system of self-sufficiency and limited trade”.
  2. Or China not only becomes self-sufficient in PE and PP; it also becomes a major exporter, which, as mentioned earlier, will hinge on whether we are moving towards a de-globalised world. In any event and given trade tensions with the West, China’s exports seem more likely to flow to the developing world – especially Belt & Road member countries.

Whatever happens, I think we can all agree – quoting the fabulous poet, WB Yeats – on this: “All changed, changed utterly:”