BLOG: China’s PP demand growth: A bubble that may have burst beyond repair

John Richardson

01-Aug-2022

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

Was it just an almightily big bubble that cannot now be re-inflated, even if Beijing follows through on its plans to inject $148bn in loans into the country’s troubled real estate sector?

Once confidence has gone, such an intangible thing, there is a risk it cannot be restored. The old “put option” was that the government would always effectively intervene to stabilise real estate, the main source of investment and savings in China because of weak pensions provision. What happens if faith in the put option fades away?

Confidence in real estate and the broader economy seem to have also been undermined by the zero-COVID policies. A stop/start recovery appears inevitable until or unless China develops an effective mRNA vaccine and administers the vaccine to the point where lockdowns and mass testing are no longer necessary.

The ICIS petrochemicals demand data, when compared with China’s credit data, show a big surge in consumption following the take-off in the real-estate bubble after 2009. In PP, China overtook the US in 2019 in per capita consumption, despite China’s per capita income being much lower than in the US.

But, of course, we could be wrong, it has been known. So far this year, though, the PP and other petrochemicals data appear to confirm the above view:

  • China’s PP spreads over naphtha feedstock costs in March this year fell to a new record low of $167/tonne and up until 22 July 2022 they were at $224/tonne, still below the previous record low.
  • The annual average spread in 2022, again up until 22 July 2022, was just $242/tonne. The previous record low was $364/tonne with last year’s spread 86% higher at $452/tonne.
  • The January-June PP net import and local production numbers point to a 1% decline in full-year 2022 demand. This would compare with 6% consumption growth in 2021 over 2020.
  • The slowdown in demand is occurring as self-sufficiency increases. Based again on the January-June net import data, this year’s net imports look set to total 2.4m tonnes, down from 3.4m tonnes in 2021 and 6.1m tonnes in 2020.

We need to prepare for a different China. The chemicals industry needs a new plan.

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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