THESE ARE STILL extraordinary times in global polyolefins markets. Although the great equalisation has begun as pricing in most of the rest of the world falls towards Chinese levels, price premiums over China remain historically very high. There are thus still strong opportunities for exporters to make good netbacks in markets other than China.
Asian Chemical Connections
The chart shows European
dependence on Russian gas compared with country-by-country percentages of the region’s total PE capacity, Germany is the standout risk country as it has a nearly 50% reliance on Russia for its gas supplies with a total of more than 70% of Europe’s PE capacities across the three grades. In the case of the Netherlands, it is the location for just under 40% of capacities with its dependence on Russian gas at around 20%.
Annualised January-June China LDPE data only indicated a 4% decline in full-year demand. What a difference a month has made. The January-July numbers point to an 8% fall in demand this year. This would be the worst annual fall in growth since 1990.
THERE IS A FEELING out there that the chemicals and polymers industry is undergoing a typical downcycle that will last a few years, followed by yet another spectacular fly-up in margins. But I believe a great deal more is happening beyond the usual cycles of over-building followed by under-building.
Because companies in all manufacturing and service sectors haven’t been adequately charged for the natural resources they use, and the damage they cause to the environment, we face the risks of catastrophic climate change and more plastic in the oceans than fish.
I WORRY that we face a crisis deeper and more complex than any of us have seen before because of the confluence of geopolitics, demographics, the changing nature of the Chinese economy as Common Prosperity reforms accelerate, China’s rising chemicals and polymers self-sufficiency, the high levels of global inflation with all its causes, and, last but certainly not least, climate change.
GEOPOLITICS IS, I believe, just one aspect of a crisis facing the chemicals industry that is deeper and more complex than anything we have faced before.
Front mind right now in geopolitics is Ukraine-Russia and the gas-supply crisis facing Europe,
THE LATEST DATA on linear low-density polyethylene (LLDPE) China CFR (cost & freight) pricing spreads over CFR Japan naphtha costs underlines the evidence from the other grades of polyolefins, that China is a long way from a full economic recovery.
Comparative PE and PP pricing data between Vietnam and southeast asia – and the “spreads” numbers between China PE and PP prices and naphtha costs – suggest the China economy has yet to recover.
RECOVERY? WHAT RECOVERY? Some market players are talking about a rebound in the Chinese economy, and, therefore, polyolefins demand, but the critically important spreads data continue to tell a different story. Nothing has changed from last week.