BLOG: Cracker project announcements continue despite all-time high oversupply

John Richardson

23-Jan-2023

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

New cracker and derivatives projects continue to be announced despite today’s record oversupply. In polyethylene (PE), for instance, ICIS estimates that global demand in excess of supply will total 25m tonnes a year in 2023-2025 compared with an annual average of 10m tonnes/year in 2000-2022.

The new China of an ageing population and the end of the real estate bubble means that, even under our base case, we expect synthetic resins demand growth of only around 2% per year over the next 20 years compared with high single digits growth in 2000-2021.

And as the world appears to be getting ever-more serious about tackling the plastic waste crisis, we must consider whether:

  • Resealable packing and other efficiencies that reduce single-use virgin polymers consumption (re-use as well as redesign) could accelerate to the point where global demand declines.
  • This could make nonsense of the conventional view that booming emerging market demand (people rising out of poverty) guarantees sunny uplands of demand for producers over the next 20-30 years. The “sunny uplands” view seems to be behind announcements of new projects over the last six months – along with the assumption that today’s record levels of oversupply will cause major rationalisation of less efficient capacity.

But companies behind the crackers due on-stream over the next four years emphasise the low-carbon output of what’s being planned, whether this is through carbon capture, electric furnaces, long-term plans for green hydrogen or other technologies.

Cheap energy supply could combine with very good economies of scale to give the new cracker announcements a competitive edge. This may force the closure of less efficient plants.

And, anyway, the shocking PE chart in today’s post today isn’t likely to be the reality by the time the new projects start-up. A lot of capacity will likely have to be shut down before the projects come on-stream, given the extent of today’s oversupply.

Demand growth may also pick up. China’s polymers demand may, as I said earlier, grow by more than 2% per annum over the next 20 years that we expect in our base case. Global inflation could have also peaked.

We may be heading towards a world where low-carbon petrochemicals and polymers are the only market, whatever is the remaining demand as re-use and re-cycling accelerate.

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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