GCC to be weighed by waning coronavirus-hit Chinese demand – consultant

SINGAPORE (ICIS)–Petrochemicals producers in the Gulf Co-operation Council (GCC) region have long benefited from booming Chinese demand but the coronavirus pandemic will significantly disrupt demand growth this year, an industry consultant said on Wednesday.

China is the largest trading partner for the GCC’s chemical industry, accounting for 24% of the overall exports from Saudi Arabia and the UAE, according to data from the Gulf Petrochemical and Chemicals Association (GPCA).

However, the coronavirus pandemic has decimated global sales of durable goods and demand for all the petrochemicals and polymers that go into durable goods.

“Think of the big drop in demand for clothing and the effects on mono-ethylene glycol (MEG) – one of the GCC region’s key exports,” John Richardson, senior consultant at ICIS, said during a webinar organised by the GPCA.

China’s total ethylene glycol (EG) demand – which includes MEG as well as di-ethylene glycol and tri-ethylene glycol – will be 4% lower in 2020 year on year, according to ICIS forecasts. 2020 consumption is estimated at 16.9m tonnes.

“This would be the biggest percentage decline in China’s EG demand since 2008, when consumption fell by 5% during the Global Financial Crisis,” Richardson said.

Net imports of EG were up by 12% year on year in the first half of 2020, with local production capacity set to rise by 30% this year, he said.

Overstocking in EG seems likely and will be worsened by floods in China which will damage downstream demand, Richardson said.

“What happened was that oil prices were rising [in H1 2020] and there was a lot of confidence in the Chinese economy. That confidence drove people to buy polypropylene, which could result in destocking in the second half of the year,” he said.

Linear low density polyethylene (LLDPE) imports could also fall to 5.1m tonnes this year from 5.7m tonnes in 2019, according to Richardson.

China’s LLDPE imports from largest trade partner Saudi Arabia could fall to 1.19m tonnes this year from 1.32m tonnes, he said.

Overall, China’s export markets look set to remain depressed for the rest of this year and into 2021, because of the global scale of the pandemic.

“Petrochemicals demand growth in China and elsewhere could take many years to return to the levels expected before the pandemic. As we said, China’s GDP growth might be negative in 2020 and there is no guarantee of a strong recovery in 2022,” Richardson said.

“Another challenge is China’s rising petrochemicals self-sufficiency. We could even see a collapse in China’s PE imports under scenarios of high operating rates over the next decade and unconfirmed local capacity being built,” he said.

Focus article by Nurluqman Suratman