BLOG: China 2022 PE demand: latest data point towards a 2% contraction as confusion over outlook builds

John Richardson

06-Jul-2022

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

The China Beige Book, the independent economic analysis service, has found that:

  • China services and manufacturing businesses saw a slowdown in the second quarter from the first quarter, reflecting the prolonged impact of COVID controls.
  • · Orders for domestic consumption and overseas export mostly fell during Q2. Orders for textiles and chemicals processing were among the worst affected.

This is in line with what our contacts have been saying and what the ICIS polyolefins data appears to be indicating. Based on the January-May numbers 2022, the outlook for full year polypropylene (PP)) and high-density polyethylene (HDPE) demand seems to have deteriorated.

We worry that China’s options for turning its economy around in 2022 are narrowing.

At least in low-density PE (LDPE), as we discuss in, the outlook has not got any worse. This is small consolation, as it had already become bleak before May. Our latest worst-case scenario is that LDPE demand may decline by 8% this year.

LDPE stands out from the other grades of polyolefins because China CFR LDPE price spreads over CFR Japan naphtha costs have held up very well this year. In PP, HDPE and linear-low density PE (LLDPE), spreads have hit record lows.

Why LDPE appears to be different is because supply has been reduced, thereby keeping prices relatively high, because ethylene vinyl acetate (EVA)/LDPE swing plants have swung to more EVA production as EVA demand seems to be booming. The EVA price premiums over LDPE are at or close-to record highs, depending on the ICIS price assessment.

And LDPE film price premiums over C4 LLDPE film have also reached record highs in China in 2022. The two resins compete for many of the same end-use markets. LLDPE supply is much longer.

So, it is not just the economy that LDPE players in China have to worry about, but these other dynamics as well. This may be the third year in a row of negative LDPE demand growth in China because of these other factors – and now an economy that could see a recession.

Meanwhile, as with the other grades of polyolefins, LDPE exporters to China need to be also concerned about a potential significant fall in China’s LDPE imports. Our worst-case scenario sees China’s net imports in 2022 some 500,000 tonnes lower than in 2021.

We are sorry it is so gloomy, and, hopefully, conditions will pick up. But hope is not a strategy. The chemicals industry needs to prepare for worst-case outcomes.

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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