In a major threat to global economic growth, China has reported a decline in imports of polypropylene (PP) and polyethylene (PP), the two major industrial raw materials, in January–September 2023. Being a large global trade partner and the world’s second-biggest economy only after the United States, the decline in imports threatens the forecast of China’s post-pandemic economic recovery.
According to reports from China’s government’s official agency, the National Bureau of Statistics, the country imported 3 million tonnes of PP in the January-September 2023 period, marking a decline of 6.4 percent from the corresponding period of the previous year. Similarly, total PE imports of 9.83 million tonnes in the January-September 2023 period in China indicate a 1.4 percent decline from the comparable period last year.
Both polyethylene and polypropylene are valued raw materials for manufacturing finished products used in a wide gamut of industries that are directly connected with the country’s economic growth. Hence, the variations in the production and consumption of these two raw materials reflect the ongoing trend across industries. These raw materials are commonly used for manufacturing packaging materials for direct applications in food parcels and consumer products, carpets, ropes, and buckets, among others.
| China’s PE trade |
| Particulars | 2021 | 2022 |
| Imports (‘000,000 tonnes) |
| LDPE | 3.1 | 3.0 |
| LLDPE | 4.9 | 4.5 |
| HDPE | 6.6 | 5.9 |
| Total | 14.6 | 13.5 |
| Exports (‘000 tonnes) |
| LDPE | 154 | 212 |
| LLDPE | 79 | 186 |
| HDPE | 278 | 325 |
| Total | 511 | 723 |
Source: Industry
PP is mostly used in automobile and packaging industries, hinges, household appliances, toys, carpets, fibers, caps, synthetic papers, etc., and polythene is used in plastic bags, food containers, and bottles, films, food crates, and pallets. In insulation, the special polypropylene film floc is principally used for car interior parts as well as for doors and windows.
Polypropylene capacity additionsLocal Chinese producers raised their PP production by 5 percent to 30 million tonnes against its consumption of 33 million tonnes in the calendar year 2022, marking an increase of 4 percent. This was an unexpected smaller increase because of persistently weak margins. The average operating rate of China’s PP manufacturing plants stood at 81 percent in the calendar year 2022, with self-sufficiency increasing to 90 percent. Experts estimate China’s PP production and consumption to remain equal to 34 million tonnes in 2023.
| China’s PP trade |
| Particulars | 2021 | 2022 |
| Imports (‘000,000 tonnes) |
| Homopolymer | 3.2 | 2.9 |
| Copolymer | 1.6 | 1.6 |
| Total | 4.8 | 4.5 |
| Exports (‘000 tonnes) |
| Homopolymer | 1,274 | 1,157 |
| Copolymer | 117 | 115 |
| Total | 1,391 | 1,272 |
Source: Industry
A leading research firm forecasts that new capacity additions for PP production are likely to reach a peak of 7.85 million tonnes in the calendar year 2024, compared to the projected 6.85 million tonnes for the calendar year 2023. In the previous two calendar years, 2022 and 2021, new capacity additions for PP production were reported at 3.15 million tonnes and 4.59 million tonnes, respectively.
However, the total annual capacity addition is estimated to be 5.75 million tonnes in the calendar year 2025 and further decreases to 5.05 million tonnes in the calendar year 2026. Chinese PP producers are considering slowing down new capacity additions after 2024 due to swelling global oversupply and weakening consumer demand amid forecasts of slow growth in the world economy.
The slowdown in capacity additions after 2024 assumes significance as investors are unwilling to increase investment in a product that already faces oversupply. According to an industry report, the global polypropylene industry is likely to witness 11 million tonnes of new capacity in the calendar year 2023, with China expected to see the highest amount. Companies such as Sinopec Hainan, PetroChina Guangdong, and Chambroad Petrochemical, among others, have announced significant investments in fresh capacity build-up this year.
Polyethylene self-sufficiency upOver the last few years, China has increased self-sufficiency in both PP and PE gradually through the setting up of greenfield manufacturing units and expanding the capacity of brownfield projects. However, China’s PE self-sufficiency rate stood at 65 percent in the calendar year 2022 and could hover within 65-68 percent until capacity additions are fully operationalized by 2026.
The world’s second-largest economy reported total PE consumption at 38 million tonnes in the calendar year 2022, which increased by just 1 percent against the previous year. Experts estimate China’s PE consumption growth to witness a slowdown with the overall volume expected at 39 million tonnes in the calendar 2023. According to reports, China’s local PE production grew by 7.4 percent in the calendar year 2022 due to sustained capacity additions, marking much higher growth when compared with demand.
In calendar year 2023, China is likely to build over 60 percent of the world's incremental capacity, adding to an already oversupplied PE market, despite weak domestic demand and slower growth in exports amid a worldwide economic slowdown. According to industry sources, China has announced the commencement of 6.2 million metric tonnes per annum (MMTPA) of new PE capacity of a total of 10 MMTPA expected from across the world this year. As a consequence, Chinese PE producers were forced to reduce operating rates from over 90 percent in 2021 to around 86 percent in 2022 and further to below 80 percent in 2023.
China is a constituent of Northeast Asia, which contributed nearly 30 percent to the global PE production capacity at 137.4 MMTPA in 2022. The regional formation in Northeast Asia includes Mongolia, Japan, and Korea, in addition to China. China alone contributes around 16.2 percent to the world’s PE production. However, the existing capacity will sustainably increase over the next three years. The 10 MMTPA increment is expected to boost the global PE production capacity to 147.6 MMTPA in 2023.
The incremental capacity addition is unsustainable thereafter due to the global oversupply of this plastic raw material. According to reports, China itself will undertake fewer capacity additions after 2026 due to expectations of falling PE prices. With the total production capacity estimated to increase to 147.6 MMTPA against a demand of nearly 115 MMTPA, the global PE market is likely to remain inundated in 2023 with a huge oversupply.
Amid expectations of the ongoing economic slowdown, the demand for high-density polyethylene (HDPE) is estimated at 53 million tonnes in 2023. Similarly, the demand for low-density polyethylene (LDPE) and linear low-density polyethylene (LLDPE) is projected to be at 20 MMTPA and 42 MMTPA respectively. All these PE derivatives have seen a 5-10 percent upsurge in demand in 2022 on economic recovery which is likely to contract in 2023.
Drag on October exportsChina’s exports slumped more than expected in October as shipments to major trade partners remained weak due to a slowdown in global demand. Exports from China declined for the sixth consecutive month in October to US$274.8 billion, dropping by 6.4 percent from the corresponding month of the previous year. The decline in China’s exports in October marks a steeper than 6.2 percent fall reported in September and much worse than the 3.8 percent contraction expected.
The decline can be attributed to persistent external challenges including the Middle East uncertainty and the Ukraine war which clouded the overall post-pandemic economic recovery. Although a surprisingly upbeat growth in imports brought initial signs that domestic demand may bounce back in the coming months.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
