Slower capacity growth to buoy up China polyolefins in 2017

SINGAPORE (ICIS)–China’s polyolefin prices are likely to be firmly supported throughout the year as overall production will grow at a slower pace compared with the previous year, with downstream demand likely to be strong, industry sources said on Tuesday.

Polypropylene (PP) capacity is projected to increase this year by 8.9%, representing a sharp deceleration from the 13.5% growth posted in 2016, according to data compiled by the China editorial team at ICIS.

Polyethylene (PE) capacity, meanwhile, is expected to post a slightly faster growth of 8.2% from 7.6% in the previous year, the data showed.

By the end of the year, PP and PE capacities are projected to be at 26.07m tonnes and 17.58m tonnes, respectively.

Given the country’s huge polyolefin requirements, it augments domestic supply with imports.

China is a major importer of polyolefins in Asia, with volumes reaching 14.5m tonnes last year. This year, the country is expected to import less PP compared with 4.57m tonnes in 2016, but more PE from last year’s 9.94m tonnes.

The country also exports polyolefins although the volumes are much smaller compared with imports. Its total PE exports last year stood at 299,000 tonnes, while PP shipments were at 279,000 tonnes, according to official data.

On the demand side, polyolefin prices – notwithstanding weakness in the first quarter – may also be driven up this year by improved sales in China’s housing sector this year, market players said.

In 2016, prices of low linear polyethylene (LLDPE) had increased by 11.5%, while raffia PP prices surged 39.4%, backed by robust futures market, according to ICIS data.

Polyolefins have applications in household appliances, furniture, pipes, among others.

But the government’s measures to clamp down on strong loan growth to prevent economic bubbles, could have a dampening effect on the industry, they said.

Some traders based in east China said that the banks in Zhejiang province had imposed stricter access to loans, resulting in tight cash flow.

Other market players are not too concerned about the government measures, noting that these supply-side reforms were meant to reduce overcapacity in certain industries.

China’s commitment to cleaner energy may also result in delays in planned coal-based capacity polyolefins expansions, market sources said.

Focus article by Angie Li

Picture (top): Petrochemical complex in Lanzhou, Gansu province in China (Photographer: Cristiano Laruffa/REX/Shutterstock)