BLOG: European PE and PP producers face re-globalisation risks

John Richardson

23-Sep-2022

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

All of us must fully understand the risks ahead from an economically slowing and more chemicals self-sufficient China.

It doesn’t matter what region you are in (today we focus on the example of Europe’s relationship to China), as story is the same. Taking polypropylene (PP) as an example (the patterns are the same in all products):

  • In 2000, China’s share of global PP demand was 15% versus its 21% share of the global population, according to the ICIS Supply & Demand Database.
  • Last year, China took up just 18% of the global population but 41% of demand!
  • In 2000-2021, China accounted for 60% of total global net imports among the countries and regions that import more than they export. In distant second place was Europe, including Turkey, at 18%.

China’s PP demand growth will surely be negative this year – and probably next year as well – with imports continuing to collapse to the point where China could soon become a net exporter.

What shielded the rest of the world from the events in China was the de-globalisation of chemicals and polymers.

Moving oversupply out of northeast and southeast Asia was difficult from March 2021 until recently because of very expensive container-freight. Other markets were kept snug by production shortages and stronger demand fundamentals.

Not now, though, as Europe struggles with energy-cost driven record-high inflation, and as the chemicals and polymers world re-globalises now that container-freight rates are coming down.

In PP, as one of the charts in today’s post shows, Northwest Europe price premiums and actual prices are rapidly declining to closer to Chinese levels.

As delegates meet for next month’s European Petrochemical Association (EPCA) annual meeting in Berlin, most of the focus will be no doubt be on the energy crisis.

But European industry executives must also consider that:

  • Despite the recent fall in price premiums, Northwest Europe PP premiums over China still averaged $749/tonne per month between January 2021 and 16 September 2022.
  • As the chemical world re-globalises, it is very possible that premiums will return to their November 2002-December 2020 monthly average of $161/tonne, as European pricing also falls towards very depressed Chinese levels.

What would this mean for European PP profitability?

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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