BLOG: China’s ethylene equivalent demand growth in 2022 could be as high as plus 9% or as low as minus 3%

John Richardson

20-May-2022

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

The old comfortable world most of us have spent all our working lives operating in – a China economy that just grew and grew – may well not apply this year.

In our view, unless the zero-COVID policies are largely relaxed before the end of the year – and probably a good few months before the end of 2022 – negative demand growth across most if not all the petrochemicals is likely,

Today we look at different outcomes for 2022 ethylene equivalent demand in China and the global implications of the outcomes.

In summary

  • Our worst-case outcome for China’s ethylene equivalent demand growth (all the derivatives made from ethylene) in 2022 over last year is minus 3%. This assumes no major relaxation of the lockdowns during the rest of this year. This would result in 1% global demand growth.
  • Under the medium case, China’s ethylene equivalent growth would be 4.5% and global growth 3%. These outcomes assume lockdowns end by no later than Q3, and that China continues to focus most of its economic stimulus on “supply side” measures such as corporate tax cuts and lower interest rates. Key objectives of the Common Prosperity reforms are more “demand side” or consumer-focused stimulus and redistribution of wealth, but this may be too politically difficult. Consumption as a share of GDP has declined in China since the pandemic – and China remains a regionally very unequal country which seems evident from the ICIS Supply & Demand and other data. There is lots of untapped consumer spending in China.
  • The best-case outcomes involve 9% China growth and 4% global growth. Lockdowns would again need to end no later Q3 with a major shift to consumption-focused stimulus.

This tells us that the strength of the recovery – when major lockdowns eventually do end – hinges on the extent of consumption-focused stimulus. Suggestions from economists include direct cash transfers to households and spending vouchers.

Remember that because of the cost-of-living crisis in the West, an export-driven China recovery doesn’t seem likely. And the old supply-slide approach to local stimulus looks as if it will deliver limited benefits because of the diminishing law of returns – overcapacity in housing and manufacturing, and high debt levels.

This underlines the point we have been making for many years: A scenario-based understanding of different China governments and their outcomes are essential for assessing the country’s petrochemicals growth.

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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