BLOG: Why China could become self

John Richardson

07-Jun-2023

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. "When the facts change, I change my mind," said the great economist John Maynard Keynes. Over the last few months, we’ve seen consensus opinion lining up behind the warnings I’ve been giving on China's economic growth since 2011.

We can see further evidence of the slowdown in China's high density polyethylene (HDPE) markets where demand looks set to be 4% lower this year than in 2022.

Now we need to turn our attention to what happens next and challenge the conventional thinking that China will never reach anywhere close to self-sufficiency in polyethylene (PE).

As the main chart in today's post – https://lnkd.in/gmH_wExX – shows:

In the years to come, China might decide to run its HDPE plants hard in order to boost export earnings and increase supply security for geopolitical reasons, even when standalone plant economics appear to point in the opposite direction.

What happens outside any HDPE plant gate anywhere in the world is also important. HDPE plants can be run harder than their standalone economics appear to justify in order balance production, profitability and contract commitments across big integrated complexes.

"China previously committed to a target of 50% of electric vehicles (EVs) by 2035, but this ambition already seems obsolete, as we project that the share of EVs in the passenger car market will exceed 50% and surpass traditional energy cars before 2030," wrote ING Think in a 28 February article.

As China pushes towards a 2060 target for carbon neutrality, might some of its refinery capacity eventually have to shut down, thereby creating shortages of petrochemicals feedstocks?

Or perhaps up until 2040, refinery capacity will be maintained with locally produced gasoline and diesel exported in bigger quantities. This would lead to ample naphtha to make ethylene and then HDPE.

"Nonsense," we can imagine some people saying, "there is no way China can become virtually HDPE self-sufficient".

Maybe. But history has taught us the perils of conventional thinking and the value of scenario planning where we are prepared for a worst-case outcome.

And remember: Some people used to say that the idea of a big economic slowdown in China was nonsense.

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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