China may face influx of US PE cargoes from Q3

SINGAPORE (ICIS)–China may be inundated by US-origin spot polyethylene (PE) offers in the third quarter, given huge shale gas-based capacities which could not be fully absorbed by US’ domestic market.

US-based PE plants with a combined capacity of 3.3m tonnes/year came on stream in the second half of 2017, according to ICIS data, and these are expected to ramp up production from July, when their upstream crackers begin operations.

US cargoes from the new PE plants have started trickling into the Chinese market since last year, but these are mostly spot volumes from traders. The offers included metallocene linear low density PE (MLLDPE), high density PE (HDPE) film and HDPE BM (blow-moulding) grades – most of them were off-specifications, according to Chinese distributors.

Last week, offers for US-origin MLLDPE for April shipments were $1,200/tonne CFR (cost & freight) China, while those for HDPE film were at $1,290/tonne CFR China, according to an east China-based trader. These offers were not confirmed by sellers.

China’s import prices for MLLDPE film stood at $1,320-1,350/tonne CFR China on 14 March, while HDPE film prices were assessed at $1,290-1,360/tonne CFR China on 16 March, according to ICIS data.

For the whole of 2017, imports of US PE surged by 46.9% to 580,000 tonnes, accounting for 4.9% of China’s total PE imports, based on official data. The bulk of the cargoes flowed into China in the first quarter of 2017 as the arbitrage window for US sellers was opened in the last three months of the previous year.

Currently, there are limited US PE volumes that go to contract customers in China but this could change over time, with the US plants ramping up operations and China’s consumption continuing its rapid increase.

PE consumption in China is growing at an average annual rate of 8-10%. In 2017, it stood at 27.4m tonnes, representing a growth of 10.9% from the previous year, much faster than the country’s 6.9% GDP expansion.

China’s PE consumption continues to grow at a robust pace, notwithstanding the economic slowdown in the six years from 2011, aided by electronic commerce (e-commerce) since the strong courier business led to a spike in demand for plastic packaging, and development of Chinese downstream enterprises inland.

Meanwhile, the ban on waste plastics imports that took effect this year is also expected to boost demand for virgin PE resins. In 2017, the country imported 1.9m tonnes of polyethylene (PE) wastes, and 1m tonnes of other types of plastic wastes, according to China Customs data.

China had relied on imports for more than 43% (11.8m tonnes) of its PE requirements last year, representing a growth of 18.6%. In January, it took in 1.29m tonnes of PE, according to official data.

While the country is also beefing up its domestic PE capacity to cater to growing domestic demand, China’s import dependence is projected to remain at 30% by 2020, according to estimates from industry sources.

It expects to add around 2.25m tonnes/year of new capacity this year, from both coal-based and naphtha-based plants. This would mean a 14.2% increase from the 15.8m-tonne domestic PE production as of 2017, but most of the new plants are expected to come on stream in the second half of 2018.

Last year, the US is estimated to have exported 700,000 tonnes of PE to northeast Asia last year – the bulk or around 600,000 tonnes of which went to China – and the volume is projected to increase to more than 2m tonnes by 2020, according to the analytics team at ICIS.

Concerns about a possible trade war between the US and China – following the US’ imposition of tariff on imports of 25% on steel and 10% on aluminium – are unlikely to affect the PE market, at least for the time being, industry sources said.

Chinese traders are expected to keep their eyes on offers for North American cargoes amid limited circulation of Iranian cargoes, following Chinese banks’ tightened supervision of foreign exchange transactions with the Middle Eastern country since end-2016. US-origin cargoes will be not be subjected to the same level of scrutiny.

Iranian PE had a 16.7% share, equivalent to 1.97m tonnes, to China’s imports of the polymer in 2017.

Focus article by Angie Li

Picture: A chemical plant in Ningbo, China. (Lou Linwei/REX/Shutterstock). Interactive by Nurluqman Suratman.