As the chart above shows, the spreads or differentials between China CFR HDPE injection grade prices and CFR Japan naphtha costs are this year the lowest they have been since 1990.
Asian Chemical Connections
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.
China’s LLDPE demand is in line to fall by 4% this year with its net imports 800,000 tonnes lower. This would follow a 1.1m tonne decline in net imports in 2021 over 2020.
The average China PP price spread in 2022 up until 19 August, was just $262/tonne. This compares with the previous annual record low of $430/tonne in 2003.
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.
THE CHEMICALS AND polymers world is behaving in ways that our industry has probably never seen before. A good example are the relationships between European and Chinese PE pricing
ANY short-term recovery in China’s PE and PP markets will likely be driven by supply and not demand. Local supply could become tighter on refinery rate cuts. Refineries have reduced production because of weak gasoline and diesel demand.
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.
CHINA’S polypropylene (PP) industry is in the short- to medium- term is being pushed into going global perhaps quicker than it had intended. This is because of the collapse of local demand and the resulting all-time weak netbacks in China versus most of the other regions.
Will China, the world’s most important HDPE demand centre, and an increasingly important supply centre, drag Europe down to its levels? Or will the China market increase closer to today’s levels in Europe?