BLOG: China LLDPE, LDPE markets see overstocking on unfounded recovery hopes

John Richardson

02-Jun-2023

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. China's economy has reached a definitive turning point because of its ageing population and the end of the real estate bubble.

We should get used to chemicals and polymers demand growth in the region of 1-2% per year, possibly even a minus growth during some years, from hereon in.

This requires a big adjustment in global chemicals supply because as recently as only three years ago, the consensus was that Chinese demand would grow at some 6-7% per year over the next few decades.

But the adjustment hasn't arrived in China's linear-low density polyethylene (LLDPE) and low-density PE (LDPE markets), where overstocking appears to be behind the January-April data, which suggest full-year 2023 demand growth of 3% for each of the polymers.

For example, China's LLDPE imports in February this year at 499,168 tonnes reached their highest level on record for the month. But imports in March and April fell month on month by 6% and 7%, respectively.

January-April 2023 LLDPE exports reached 64,678 tonnes, 96% higher than last year. These were the highest January-April exports on record.

The CFR China LLDPE film grade price spread over CFR Japan naphtha costs so far this year is just $1/tonne higher than its lowest annual level since 1993 – when ICIS started its price assessments.

And despite the weak market conditions and a 5% scheduled rise in China's capacity this year following an 11% increase in 2022, this year's LLDPE domestic operating rate is at 85% compared with just 78% in HDPE.

It is a very similar story in LDPE.

So, unless macroeconomic conditions improve, expect destocking in both polymers and potentially weaker full-year 2023 demand growth than is suggested by the January-April data.

Even a 3% growth would be much lower than the 2000-2021 average growth of 11% for LLDPE and 7% for LDPE.

The New Normal has truly arrived.

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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