US producers face uphill battle to increase PE sales in China

Chemical companies

SHARE THIS STORY

China PE May15a China is the world’s largest polyethylene market.  One-third of the way through the year, it  is therefore interesting to analyse the ratio of its own production versus imports, and look at relative import market shares.  The chart shows annual data since 2005, with 2015 data to April, based on trade data from Global Trade Information Services:

  • China’s domestic production has maintained an average market share of 57% over the period.  This dropped to 52% when stimulus began in 2009, but was back at 56% in 2015, as its new capacity has come online (red area)
  • Unsurprisingly, the Middle East has seen major gains in share.  It averages 16% since 2005, but it has been rising steadily since its new capacity began to come online in 2010.  It is thus at 22% so far in 2015 (blue)
  • SE Asia has seen a reasonable performance.  Its share averages 9%, but this disguises a dip from 11% in 2005 to 7% in 2010, followed by a recovery to 10% today, as its new capacity came online (light blue)
  • NE Asia has been the main loser.  Its share has fallen from a 15% peak in 2005 to just 7% today (green)
  • NAFTA has been the other loser.  Its share hit a peak of 8% in 2009, but has since collapsed to just 2% (orange)
  • The EU share has been stable but tiny at 1% (yellow), as has that of Others (black)

The chart thus highlights the major challenge facing US producers as they seek to find markets for their new production.  They will not have a cost advantage versus the largely ethane-based supplies from ME/SEA.  And they have a considerable logistical disadvantage, as they are operating on the other side of the world from China.

There is also, of course, a major question mark over whether China’s demand will continue to expand as it did under the stimulus programme.  Its New Normal policies in fact look designed to slow the economy, in order to burst the lending/property bubble that was created by stimulus.  As a result, the US faces a difficult choice:

  • Does it continue with its current plans in the hope that China’s demand does continue to expand as previously?
  • Or does it settle down for a long and attritional battle to force its product into the market versus current suppliers?

It is hard to see that any other options remain. The Latin American market is simply not big enough to take the planned new capacity.  In fact, the arrival later this year of the new Mexican capacity will probably reduce the Region’s import needs from the rest of NAFTA. Equally, the option of trying to force the closure of European capacity seems far-fetched, given the importance to EU refineries of naphtha demand for petrochemicals.

Of course, US producers are still euphoric today about the arrival of shale-based feedstock.  But cold reality shows that their export volume and share has been falling over the past few years, despite this advantage.   And the example of the Incredible India campaign shows that euphoria alone is not sufficient to create sustainable business advantage. It is thus hard to disagree with the recent analysis presented by former LyondellBasell CEO Jim Gallogly:

Some don’t look far into the future but just react. Some will be too late. It is time to recognise (the reality).  I would suggest that you think very, very hard about these investments. Some of you simply are going to be too late. And you need to recognise where you are at.

PREVIOUS POST

Brazilian, Russian, Japanese auto markets continue to struggle

27/05/2015

Bill White’s important critique of the policies being followed by his form...

Learn more
NEXT POST

45-year baby drought stalls Western economic growth

29/05/2015

200 years ago, most blog readers would have been dead at their current age.  Li...

Learn more
More posts
Reshoring set to create Winners and Losers as advanced manufacturing takes over
12/07/2020

Not many companies still operate in the same way as 500 years ago, or even 50 years ago. But in manu...

Read
Polyethylene’s crisis will create Winners and Losers
08/12/2019

Polyethylene markets (PE) are moving into a crisis, with margins in NE Asia already negative, as I h...

Read
Day of reckoning approaches for US polyethylene expansions, and the European industry
08/09/2019

Planning for future demand in petrochemicals and polymers used to be relatively easy during the Baby...

Read
Stormy weather ahead for chemicals
24/03/2019

Four serious challenges are on the horizon for the global petrochemical industry as I describe in my...

Read
Ethane price hikes, China tariffs, hit US PE producers as global market weakens
23/09/2018

Sadly, my July forecast that US-China tariffs could lead to a global polyethylene price war seems to...

Read
US ethylene prices near all-time lows as over-capacity arrives
13/05/2018

US ethylene spot prices are tumbling as the major new shale gas expansions come on line, as the char...

Read
World Aromatics Conference focuses on key industry challenges
04/11/2017

Our 16th World Aromatics and Derivatives conference takes place on Wednesday/Thursday in Amsterdam. ...

Read
Hurricane Harvey will turbocharge move to the circular economy
25/09/2017

300,000 homes and half a million cars have been destroyed by Hurricane Harvey.  And in terms of bus...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more
X

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from ICIS.com

DISCOVER MORE