BLOG: China economy, PP demand, may see no benefit from zero-COVID exit until 2024

John Richardson

07-Dec-2022

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

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 and that China’s consumer spending will soon come roaring back.

Don’t get sucked under this tide of flawed optimism. Your base case for polyolefins production and sales targets for 2023 must involve a prolonged and difficult exit from zero-COVID.

In today’s post, we provide an updated outlook for China’s polypropylene (PP) demand in 2023 including three scenarios – best, medium and worst-case.

No economic benefits from the gradual unwinding of restrictions are likely until 2024 because of the need to improve healthcare provision and raise vaccination rates among the elderly, according to Capital Economics.

And even in 2024, the recovery will be limited by the Common Prosperity economic reforms. The deflation of the property bubble will restrict PP demand growth.

China’s demand for PP imports could also decline further next year to the point where it may become a net exporter.

For example, even if China successfully exits zero-COVID next year -resulting in PP demand increasing from 1% growth in 2022 to 6% in 2023 – China could still end up in a net export position of 200,000 tonnes.

Consider this: In 2021, China accounted for 42% of global net imports among the countries and regions that imported more than they exported.

This remarkable turnaround would be the result of years of rapid local capacity growth. In 2023, ICIS estimates that China’s capacity will increase by a further 17%.

If you are one of the major PP exporters in the Middle East, South Korea, Singapore and Thailand, you must focus more on the remaining big net import markets listed in the third slide in today’s blog post. These include Turkey, Africa, Indonesia, India and Europe.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

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