After achieving approximately 90 percent self-reliance in 2022, polypropylene (PP) producers in China have decided to gradually reduce plant capacity utilization to accommodate the slowdown in both domestic and international demand due to global economic weakness. However, Chinese PP producers will continue with capacity expansions to restore their operating rates in the future. The objective of this reduction is to prevent the market from falling into the grip of oversupply, which could lead to a substantial correction in global PP prices.
China’s self-sufficiency increased by almost 10 percent over the last two years, thanks to increased consumption driven by the brownfield and greenfield expansions in the downstream sector. The country’s average self-sufficiency level stood at 80 percent in 2020 but has consistently risen to the current level. The average plant operating capacity also received support from export demand.
According to reports, Chinese PP producers reported an average capacity utilization of their existing PP-producing plants at 81 percent in 2020, which is substantially lower than the 87 percent reported in 2021 and the peak of around 92 percent posted in 2021. This indicates that Chinese producers adjusted their operating capacity based on the demand for PP products.
| China’s PP trade (‘000 tonnes) |
| Imports | 2021 | 2022 |
| Homopolymer | 3.2 | 2.9 |
| Copolymer | 1.6 | 1.6 |
| Total | 4.8 | 4.5 |
| Exports |
| Homopolymer | 1.3 | 1.2 |
| Copolymer | 0.1 | 0.1 |
| Total | 1.4 | 1.3 |
Source: Industry
Despite a decline in average capacity utilization, these producers will continue to prioritize capacity creation. Therefore, Chinese manufacturers are expected to further reduce their plant operating capacity, reaching around 76-77 percent by 2026. Despite this decrease in average capacity utilization, the addition of fresh capacity will make China entirely self-sufficient, with both total production and consumption estimated to be at 34 million tonnes in 2023.
However, after two continuous years of self-sufficiency in 2024 and 2025, China is likely to move back into a production deficit in 2026, with an expanded production capacity following the commencement of the currently under-construction projects. This does not necessarily mean that China will cease imports and exports of PP. Traders will continue to fulfill overseas orders depending on price realization for both inbound and outbound goods.
| Region-wise capacity additions in 2023 to the world total of 103.7 MTPA |
| Region | Fresh capacity (million tonnes per annum or MTPA) |
| Northeast Asia | 6.9 |
| Southeast Asia | 1.6 |
| Africa | 0.8 |
| North America | 0.5 |
| Russia & CIS | 0.5 |
| South Asia | 0.5 |
| Europe | 0.4 |
Source: Industry
Capacity additionsSix years ago, in 2016, China’s PP production capacity was estimated at approximately 18 million tonnes per annum, with almost 100 percent capacity utilization, while the country’s demand was at 22 million tonnes. Since then, both PP production and consumption have increased significantly. China’s PP production rose to 30 million tonnes in 2022, and its consumption reached 33 million tonnes, with the country’s installed polypropylene capacity standing at approximately 37 million tonnes.
Reports indicate that Chinese producers installed approximately 1.3 million tonnes of additional PP production capacity in 2022. In the previous year, China’s total PP installed capacity was estimated at 31.7 million tonnes per annum (MTPA). In fact, major Northeast Asian countries – China, Japan, South Korea, North Korea, and Russia, are likely to cumulatively account for around 51 percent, equivalent to 6.9 million tonnes per annum (MTPA), of the global capacity additions projected at 11 MTPA in 2023.
The Northeast Asian country’s massive expansion plans will be followed by 1.6 MTPA of fresh capacity to be added by manufacturers in Southeast Asia. Producers in the African countries are set to add 0.8 MTPA of new capacity in 2023, followed by North America 0.5 MTPA, and Europe 0.4 MTPA. Therefore, continuing fresh capacity additions will take the global PP manufacturing capacity to 114.8 MTPA in 2023, compared to 103.7 MTPA in the previous year.
| China’s PP exports increase to South America, decrease to South Asia (‘000 tonne) |
| Country/region | 2021 | 2022 |
| North America | 69 | 96 |
| South America | 164 | 242 |
| Africa | 62 | 66 |
| Europe | 29 | 11 |
| Middle East | 129 | 77 |
| Russia & CIS | 15 | 43 |
| Oceania | 3 | 3 |
| South Asia | 296 | 230 |
| Northeast Asia | 119 | 91 |
| Southeast Asia | 407 | 341 |
Source: Industry
China, the world’s second-largest economy, has embarked on a mega expansion drive in its PP production capacity over the next few years. Chinese producers such as Chambroad Petrochemical and Guangzhou Juzhengyuan (at Phase 2 plant) have announced to set up PP manufacturing facility at 600,000 MTPA each in 2023, Sinopec Hainan and Baofeng Energy plans to install 500,000 MTPA each at different locations. Ningbo Jinfa New Material also unveiled its plan to set up an 800,000 MTPA of PP manufacturing facility in 2023.
Exports to grow with new capacity additionsChina is presently a net import of PP with its import reporting at 4.5 million tonnes in 2022, a 16 percent decline from 4.8 million tonnes reported in the previous year. The country’s homopolymer grade PP imports led the roost with its inward volume reporting at 2.9 million tonnes in 2022 versus 3.2 million tonnes in the last year. Copolymer imports, however, remained stable at 1.6 million tonnes.
In terms of exports, China reported an 8 percent contraction at 1.3 million tonnes in 2022 versus 1.4 million tonnes in the previous year. While homopolymer exports from China declined to 1.2 million tonnes in 2022 from 1.3 million tonnes last year, copolymer exports were stable at 0.1 million tonnes in the past two years. However, China’s overall PP exports are likely to rise significantly in the future with new capacity additions.
Economic painsChina’s economy is being impacted by a combination of subdued global demand and a broader economic slowdown, with the country’s exports and imports contracting in August. According to Chinese customs, overall exports from the world’s second-largest economy declined by 8.8 percent in August on a year-on-year basis, which indicates a remarkable recovery from the 14.5 percent fall reported in July. As a growth driver to the country’s economy, China’s exports have been declining since October last year, except for positive growth in March and April. China’s exports had reached the lowest in July 202 when the outbreak of the coronavirus (Covid) pandemic severely impacted global demand.
In the month under review, China’s overall imports experienced a decline of 7.3 percent in August, against a 12.4 percent drop reported in the previous month. The looming threat of an economic recession in the United States and Europe, coupled with an elevated level of global inflation, has further contributed to the weakening international appetite for Chinese goods throughout this year.
These indicators reflect China’s diminishing post-Covid economic recovery. Interestingly, the rating agency on Thursday lowered China’s gross domestic product (GDP) growth forecast to 4.8 percent from 5.6 percent earlier. The government data showed China’s factory activity contracted for a fifth month in August, amid mounting pressure on Beijing to offer more policy support to bolster its sluggish economy.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
