BLOG: European polyolefins could be dragged down by China

John Richardson

03-Aug-2022

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

China, China and China.. These are the three big problems facing the global polyolefins as the risk persists that the markets in other regions will be pulled down to levels in China.

With, in our view, no realistic prospect of a Chinese recovery this year, producers elsewhere must consider the implications of such an event, especially those in Europe.

In Europe, as today’s post discusses. Study the slides in the post which show the always hugely valuable ICIS pricing historic data and what it tells us about what could happen next.

You can see that European high-density polyethylene (HDPE) and polypropylene (PP) injection grade price premiums over China (it’s been the same story in other grades) have been at all-time highs since March last year.

In July this year, they sharply declined towards their historic averages. But this may just be a summer holiday lull. Let’s see what happens in September.

However, I see it as inevitable that China will adversely influence Europe – rather than China rising towards European levels because:

  • Eventually, container-freight markets will lengthen (we saw early signs of this up until mid-July this year), allowing the Asian and Middle East exporters to relieve some of the big oversupply in Asia with more exports to Europe.
  • The extent of the oversupply overhang is big, as the latest ICIS data point to a 3% fall in overall HDPE demand in 2022 and a 1% fall in PP demand. This could occur as China’s self-sufficiency in both polyolefins. In the case of PP, for instance, the latest numbers suggest 2022 net imports of 2.4. tonnes – a million tonnes lower than 2021 and no less than 3.7m tonnes lower than in 2020.
  • Don’t dismiss the relevance of China to the European market given the outsized role China plays in shaping the global picture. Spare volumes will need to a find a home.

And, of course, Europe faces a major inflation crisis with varying effects on consumption across the different grade of PE and PP.

These are incredibly difficult and volatile markets conditions, the most difficult and volatile we have seen in 25 years studying the industry.

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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