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.
Companies behind the crackers due on-stream over the next four years emphasise the low-carbon output. The planned new plant also have excellent economies of scale
Even our base case sees global PE capacity in excess of de</mand at 22m tonnes in 2023 compared with a 10m tonnes/year annual average in 2000-2022. We forecast this year’s global operating rate at 79% versus the average annual 2000-2022 operating rate of 86%. Downside One would see 28m tonnes of excess capacity and a global operating rate of 77%; Downside Two would be 30m tonnes and 76% respectively.
Scenario 1 for next year assumes that China successfully transitions from its zero-COVID policies. Consumer confidence comes roaring back. Demand grows by 4% year-on-year to a market of 17.6m tonnes.
Scenario 2 assumes that high infection rates and lack of healthcare resources keep consumer confidence depressed but that the global economy recovers, supporting China’s exports. Growth is minus 2%, leaving demand at 6.6m tonnes.
The worst-case outcome is Scenario 3 where the impact of zero-COVID continues, and the global economy gets weaker. Consumption falls by 4% to 16.1m tonnes.
AGAIN, PLEASE DON’T SAY I didn’t warn you. The chart below is an example of how PE prices have started to re-globalise. as I said they would when they began to de-globalise from March 2021 onwards.
What applies to the declining polyethylene (PE) price differentials between Europe and China applies to all the other countries and regions versus China. The pattern has been the same in polypropylene (PP) over recent months.
A SELECTIVE READING of the news is giving polyolefins market participants confidence. They see the relaxation of zero-COVID restrictions in some Chinese cities as a sign that the worst is over. But a recovery in PP and PE demand seems unlikely until 2024.
IT REALLY ISN’T doom and gloom if you take the longer-term view. Instead, for the chemical companies with the right strategies, the opportunities to build new sustainable business models are huge. The winners will make an awful lot of money while also doing the right things for humanity and our natural environment.
China’s HDPE in demand in 2023 could fall by as much as 4% over 2022. Next year’s net imports may slip to as low as 3.8m tonnes from around 5.7m tonnes in 2022.