Big HDPE exporters see another $700m of estimated China sales losses in one month

By John Richardson

NINE OUT OF CHINA’S top 10 high density polyethylene (HDPE) import partners saw their sales to China fall by an estimated total of $1.8bn in January-July 2023 versus the same period last year. Meanwhile, the remaining member of the top 10, the US, saw its sales increase by $233m.

In January-June 2023 versus January-June 2022, losses among the same nine partners reached an estimated $1.1bn. This suggests that in the space of a month, China’s HDPE market has substantially worsened.

And while the US was still in the black with an estimated sales gain of $232m year-on-year in January-July 2023, this compared with a $373m gain year-on-year in January-June 2023.

Volume-wise, these are the imports in tonnes for the same top 10 partners reported by the China Customs department for January-July 2023 – again compared with the same period in 2022.

The US percentage share of total China HDPE imports increased from 3% in January-July 2022 to 13% during the same months this year. This was unchanged from January-June 2023 compared with January-June 2022.

Meanwhile, imports from the Middle East, as you can see from the table, continued to see big declines.

Perhaps the Middle East will win more market share in China during the remainder of this year as the region saw a lot of plant maintenance during H1 2023.

But are we instead talking about a cost-of-production battle with the US in a better position to win because its crackers run very heavily on low-cost ethane, whereas some of the crackers in Saudi Arabia are mixed feed?

It also important to bear in mind that the US is under pressure to increase its exports to all destinations because of another wave of capacity increases. US HDPE capacity is forecast by ICIS to increase by 7% this year versus only a 1% increase in local demand.

As the chart details below, US HDPE capacity exceeding local demand is forecast to rise to 3.6m tonnes in 2023 compared with 3m tonnes in 2022.

The US needs to export an estimated 45% of its PE production in general to hit an average industry operating rate of 90%.

This target was missed last year because of logistics constraints – shortages of railcars, trucks and warehouses – that have reportedly eased.

In 2022, the US saw total HDPE exports of 3.7m tonnes. If you annualise January-June 2023 exports (divide by six and multiply by 12), this suggests full-year 2023 exports of 4.1m tonnes.

China’s HDPE data continue to point towards negative 2023 demand growth

At the beginning of this year, the consensus view was that China’s HDPE demand would grow by 4-5% in 2023. At the time, I warned this might not happen because of the risk of no big economic bounce back following the end of the zero-COVID restrictions.

The China Customs net import data for January-July 2023 – added to our estimate of local production and annualised again – suggest this year’s demand could fall by 2%.

This would leave China’s 2023 HDPE consumption at 16.9m tonnes, 1.2m tonnes smaller than if the market grew by 5%. This amounts to the need for around three fewer new world-scale HDPE plants.

And as the chart below shows, China’s 2023 net imports – again based on annualising the January-July data – appear to be heading for a significant decline.

This year’s net imports could reach just 4.3m tonnes versus 5.6m tonnes in 2022 and the historic peak of 9m tonnes in 2023.

ICIS expects China’s HDPE capacity to increase by a further 12% in 2023 following a 21% increase in 2022. This would leave this year’s capacity at around 15m tonnes/year.

We don’t know how this will end

During the previous 30 years, we knew how every downturn in China’s economy would end: With a big dose of economic stimulus that would bring growth roaring back.

But we know this cannot happen now because of the debt and demographic challenges. What we don’t know is how hard China’s economic landing will be.

“Small businesses and workers who thrived on the decades-long property boom are no longer getting paid,” wrote the New York Times in this 28 August article.

“As a group, suppliers are waiting on at least $390bn in payments, according to the research firm Gavekal Research. And that’s a conservative estimate; the number is probably larger,” the newspaper added.

We need to worry about other unintended consequences such as heavily indebted provincial governments – responsible for some 70% of total government spending – being unable to spend.

We should also consider the effects on consumer confidence of the end of the real-estate bubble and record-high youth unemployment.

But whereas nobody knows where this will end, making it impossible to call what will be the bottom of the global HDPE market, this much has been true since 2011: China’s “economic growth miracle” was always going to come to an end.

HDPE and other chemicals and polymers companies could and should have had plans in place for this happening.

 

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