The ICIS Base Case is already very conservative, assuming an annual average China PE demsnd growth of just 2% per year between 2023 and 2025 compared with 11% in 2000-2022. But I see average growth of only 1% or even minus 2% as perfectly possible.
Asian Chemical Connections
China’s cumulative HDPE demand under the downside scenario would be 97m tonnes lower than our base case. in the above chart
During this downturn, razor-like focus on fluctuating netbacks and supply and demand among all the different countries and regions will allow producers to ensure that they don’t make product for markets where there is no demand, while ensuring that they take maximum advantage of many brief periods of stronger demand and pricing.
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
The decline in container freight rates has opened the SEA PE market to more competition – pulling the region’s spreads closer to the record-low China levels
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%.
EVEN if China’s PP demand growth is 14% this year – double our forecast – and growth in other regions is higher than we expect:
Global capacity in excess of demand would be 18m tonnes in 2023 compared with a 8m tonne/year average in 2000-2022,
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%.