The average China PE spread between 1 January and 17 March this year was just $290, the lowest since our assessments began.
Between 2000 and 2021, before last year’s collapse, the annual spread averaged $532/tonne. This means that until spreads increase by 83% from their current levels, there will have been no recovery..
China’s cumulative HDPE demand under the downside scenario would be 97m tonnes lower than our base case. in the above chart
Capacity exceeding demand is forecast to reach 218m tonnes this year from a 1990-2022 annual average of 76m tonnes.
IF China had been a typical developing economy, as the above chart illustrates, its cumulative 1990-2022 could have been 300m tonnes smaller. As history moves forward,this suggests that China’s long-term demand growth could turn negative
China could be net exporter of 900,000 tonnes of PP this year, down from 2022 net imports of 3.2m tonnes This makes the other import markets more important for producers.
EVEN IF CHINA’S PE demand grows at 10% in 2023, with very strong growth in other regions, this year’s global capacity would still be 22m tonnes more than demand!
IT ALL CHAOS AND MUDDLE out there: China’s ethylene glycols demand could either grow by 10% in 2023 or contract by 5%.
Global PE capacity in excess of demand is forecast to average 24m tonnes/year in 2022-2025, and to reach 26m tonnes this year
Operating rates are expected to average 81% in 2022-2025. This would compare with a 10m tonnes annual average capacityexceeding demand in 2000-2021 and an operating rate of 85%.
The strength of China’s post zero-COVID recovery in 2023 will be crucial, as will local operating rates as self-sufficiency further increases.
Another important factor: European gas supply next winter and the effect on local PE production.
Scenario 2, my preferred scenario, would see China 2023 PE demand at approximately 38.5m tonnes – an average of 2% higher across the three grades than in 2022.