BLOG: CFR China PE spreads hit new record low due to all-time high oversupply

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: The chart in today’s post tells us that this year’s average per tonne CFR China PE price spreads over CFR Japan naphtha costs has fallen to its lowest annual level since we began our price assessments way back in 1993.

Spreads remain, in my view, the best single guide to longer-term supply and demand fundamentals beyond temporary events such as turnarounds and what we all hope will be a short-lived crisis in the Red Sea.

The chart informs us that before we can declare a full recovery, HDPE spreads need to rebound by 138%, LDPE spreads by 55% and LLDPE spreads by 91%. Average PE spreads would have to rise by 86%.

The significance of this data should not be underestimated as we confront the deepest and longest lasting structural upheavals that the Asian and global polyolefins industries have faced.

The ICIS Supply & Demand Database then tells us this:

Global HDPE capacity between 2024 and 2030 would have to be 97% lower than our base case for global operating rates to reach their historically healthy level of 88%. ICIS forecasts average 2024-2030 global HDPE operating rates at just 75%.

Global LDPE capacity growth in 2024-2030 would need to be 140% lower than the ICS base case to hit historic operating rates of 85%. In other words, capacity would have to shrink. ICIS forecasts annual average global LDPE operating rates at 78% in 2024-2030.

Global LLDPE capacity growth would need to be 25% lower than the ICIS base case to achieve historic operating rates of 84%. We forecast 2024-2030 global LLDPE operating rates at 80%.

Please note that these already alarming enough numbers do not include capacity growth more than what is being forecast by ICIS.

Further announcements of new capacity to come on stream by 2030 seem possible because of China’s push towards complete self-sufficiency for supply security and economic value addition reasons, and Saudi Aramco’s need to protect oil consumption via its crude-oil-to-chemicals technologies.

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.