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HomeEconomyEuropean PE and PP producers face re-globalisation risks – Asian Chemical Connections

European PE and PP producers face re-globalisation risks – Asian Chemical Connections

John Richardson

Comparing long-term price patterns of chemicals and polymers across different regions makes sense since the year 2000, when China’s influence on global pricing increased and the industry globalized.

This reflects China’s much larger role in driving global demand, as shown in the graph below, taking polypropylene (PP) as an example.

What is true for PP is true for all other chemicals and polymers.

In 2000, China’s share in the world’s PP demand was 15% against a 21% share of the world’s population. ICIS supply and demand database.

A tipping point was reached in 2005, when China’s share of global demand surpassed its share of world population for the first time. That year, China accounted for her 21% of global demand, compared with 20% of the world’s population.

But think about the importance of this last year. China accounts for only 18% of the world’s population, but 41% of the demand! Its share of global demand increased from 15% to 41%.

Now let’s compare China with developed countries.

Developed countries’ share of global demand fell by 56% in 2021, falling from 61% to just 27%. This happened because the population is barely changing at about 1.1 billion people.

And here are the developing countries.

Among the world’s three mega-regions, the developing world will grow significantly in population from 3.7 billion in 2000 to 5.2 billion in 2021, while its share of global PP demand will increase from 24% to 32%. only increased.

It’s also worth repeating this slide From my September 15th post.

China accounted for over 60% of global net imports of PP from 2000 to 2021. Europe comes second with Turkey at 18%. This is he one of the countries and regions with more imports than exports.

Why the world of polyolefins is globalizing again

However, for some time, China’s role in driving global pricing in the polyolefin market that I follow has greatly diminished. Price premium from March 2021 As polyolefins become more deglobalized in nature, they have risen to all-time highs among many other parts of the world and China.

This is a result of the expensive and tight containerized freight market limiting the ability of Asian and Middle Eastern exporters to move oversupply out of the North East (NEA) and Southeast Asia (SEA).

The oversupply was caused by the cooling of the Chinese economy. Economic Reform for Common Prosperity – and a large capacity addition in China. This is in comparison with the tight market abroad.

Pandemic-related stimulus measures boosted demand, especially in Europe, the US and other parts of the developed world.

Polyolefin supplies were constrained by a shortage of feedstock from refineries due to refinery rate cuts due to the pandemic. February 2021 Texas Winter Storms Hurricanes in the US later in the year spurred tightening of PP and PE.

But as the chart below shows, the world of polyolefins is globalizing again as freight rates drop.

This is a result of the reduced demand for durable goods. The decline in demand is a result of the global inflation crisis and the post-pandemic cycle of spending on durable goods returning to services.

Falling freight rates are said to make it easier for major exporters in Asia and the Middle East to move PP and polyethylene (PE) out of the NEA and SEA.

China’s capacity additions are in step with China’s PP and PE demand headed for negative growth in 2022.

For PP, the combination of negative 1% growth and additional capacity could reduce net imports to 2.4 million tonnes in 2022 from 3.4 million tonnes in 2021 and 6.1 million tonnes in 2020. Meanwhile, his PP exports in China are increasing.

China’s slowdown is hurting the broader economy, particularly in export-focused economies such as Germany and Vietnam.

Declining European price premium over China

As I talked about it in my September 19th post – Premiums are falling when China launches a new weekly PP and polyethylene (PE) price index that compares it to groups of other countries and regions. This is happening as non-Chinese pricing approaches China’s very low levels.

Now let’s take a closer look at Northwest Europe (NWE) pricing versus China. Again we use PP as an example (the pattern is similar for PE).

The average NWE PP price premium for block copolymers, raffia and injection grade homopolymers in China reached an all-time high of $1,192/ton in May 2021.

Premiums then fluctuated within a narrow range, peaking at $809/ton in April of this year. However, premiums have been falling since April. From September to September 16 of this year, it was $338/ton from $425/ton in August.

Looking at the actual prices, we can see that European prices have been closer to Chinese levels since April.

The large gap between PP prices and naphtha feedstock cost spreads has also narrowed.

The premium of NWE spreads to Chinese spreads reached a record high of $1,203/t in May 2021. From September 2022 he was at just $303/ton premium on the NWE spread through September 16th.

Spread is the basic measure of profitability.

EPCA and the Necessity of Discussions on China

This year’s European Petrochemical Association (EPCA) Annual Meeting will be the first live annual meeting since the pandemic, with delegates meeting in Berlin from 4-6 October, so much of the discussion will be on the European energy crisis. There is no doubt that you should concentrate on

European gas prices may have peaked in the medium term, according to ICIS senior gas editor Aura Sabadus. This ICIS Think Tank podcast.

“The era of cheap Russian gas may be over, but assuming plans for more LNG supply come to fruition in the next few years, prices will rebalance. may not come back, but it won’t be much more than $30/MMBTu,” said Aura.

But even though Europe’s gas storage levels exceed EU targets, gas rationing cannot be ruled if northern hemisphere winters are cold.

“Improved supply and subdued demand over the summer and winter allowed European gas storage levels to surpass the EU target of 80% by October, a month early. Germany October 1 We may even be able to reach the 90% target by day,” writes Will Beacham, Deputy Editor-in-Chief of ICIS Chemical Business. In this ICIS Insights article.

Of course, energy issues are very important for Europe, but participants should not lose sight of the re-globalization of polyolefins.

Will European PP and PE price premiums over China return to their long-term averages?

For the same three grades of PP as above, NWE’s monthly price premium over China from November 2002 to December 2020 averaged $161/tonne. The price premium from January 2021 to September 16, 2022 averaged $749/ton.

What would be the impact on European PP pricing and profitability if price premiums were to be fairly close to long-term averages?

Attendees should also ponder the first three slides of this post and consider what happens next in global chemical and polymer demand as we attempt the biggest shift in growth models. . Since Deng Xiaoping South Tour in 1992.

What if China’s share of global demand starts to decline? There is a risk of negative chemical growth in China next year and even beyond 2023. This is because no one knows if the new common prosperity approach will work.

Given all other economic challenges, no other country or region is capable of recapturing China’s lost growth momentum.

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