INSIGHT: Government policy will help ensure China polyolefins supply in 2022

SINGAPORE (ICIS)–China’s polyolefins supply is expected to remain ample in 2022, on the start-up of new capacities and the government’s persistent efforts to ensure stable energy supply.

The annual tone-setting Central Economic Work Conference, held during 8-10 December in Beijing, analysed the current economic situation, laid out economic priorities for 2022 and outlined key tasks, including efforts to ensure energy security.

China’s economy is under pressure from shrinking demand, supply shock and a bearish outlook, while the external environment is more complicated and uncertain, the government said at the conference. Increasing challenges at home and abroad exert stronger downward pressure on China’s economy.

Regarding the one-size-fits-all power and production restrictions that some local governments had taken to achieve their carbon emission reduction goals, the central government called at the conference for proper understanding of what peak emissions and carbon neutrality mean for China.

Recycled energy and energy consumption as feedstock, in short, coal chemical and petrochemical production, are not subject to energy consumption control. This aims to prevent feedstock shortages, ensure energy security and stabilise prices for related industrial products. Market players believe that this will benefit the coal chemical industry and guarantee supply in future.

In order to hit their dual control targets of energy consumption and intensity, some local governments restricted power supply in September. As a result, some chemical producers had to shut units or reduce output, causing sharp decreases in supply and price hikes.

Disrupted supply chains overseas have also affected China’s domestic market. Some overseas units are shut down or running at reduced rates due to lockdowns against the coronavirus. Extreme weather, such as the cold snap in the US in February also caused plant shutdowns and, therefore, reduced supply. These, combined with a shortage of containers and surging shipping freight costs, have all affected the domestic market.

Coal and methanol prices decreased from October as the government took measures to control coal prices. Polyolefins prices dropped in line with falling feedstock prices and improved supply, as producers gradually resumed operation with the end of the power crunch.

However, market players are still concerned about the outlook for supply. Many of them worry that some local governments may restrict production again at the end of the year in order to achieve their dual control targets, and that dual control policies may affect supply in 2022.

Nevertheless, China will learn from previous experience and pursue peak emissions and carbon neutrality in a more orderly fashion.

Since traditional energy remains the mainstream, the government will continue to give priority to energy supply, calling that major companies, especially state-owned companies, should guarantee stable supply and prices, as coronavirus is still a challenge.

Energy as a feedstock is excluded from energy consumption control and this means means that upstream units in the chemical industry may maintain high run rates.

In addition, nearly 8m tonnes/year of new polyolefins capacity will come on stream in 2022, so supply is expected to become more ample.

However, downward pressure on the economy may weigh on downstream demand. Therefore, polyolefins imports may decrease further, with China’s self-sufficiency ratio higher. Meanwhile, domestic producers will also increase exports to ease the domestic supply pressure.

In the long term, the replacement of traditional fossil energy by new energy and recycled energy to achieve peak emissions and carbon neutrality is still China’s strategic goal. China will continue to pursue a green and low carbon transformation and high-quality development of both the economy and society.

Insight article by Lucy Shuai