When it comes to chemical prices, the China market has a big role to play. Their economy is at a halt, and no one really knows how long it will stay that way. Join Victoria Meyer as she talks John Richardson, a Senior Consultant at ICIS. Find out how China’s Zero COVID Policy and the ongoing demand destruction are damaging the entire chemical market. Take a deep dive into the state of polymers across the continents of Asia and Europe, specifically Polyethylene and Polypropylene.

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How The China Market Affects Chemical Prices With John Richardson

I am speaking with John Richardson, who is a Senior Consultant at ICIS. John has been on the show a number of times, including Episode 36, as he shares his views on what’s going on across the chemicals industry, polymers in particular, with a close view of China, and the impacts that the market has. John, welcome to the show.

Thank you, Victoria.

Glad to have you back on. Your episodes are always popular. I keep track of which episodes people read, and they read yours, so that’s a good sign.

I’ve got a lot of relatives.

Also, you have a lot of friends in the audience that are happy to know your insights. We’re recording this here at the end of 2022. If we go all the way back to the beginning of the year, there was this whole expectation that the world and China was going to be coming out of the doldrums that were caused by COVID, supply chain disruptions, etc. I don’t think we’ve seen this. How has the year manifested from where you’re sitting when you’re looking at polymers markets and the European and Asian markets?

You would have expected some moderation of growth in China. What people didn’t fully realize was the extent to which China benefited from the pandemic boom. It was all the ‘China in China out’ story we talked about before. All the chemicals were going to China, re-exported as durable. We were buying in lockdown in the rich world. You will expect the moderation of growth, but you didn’t expect growth to be very positive, and a much bigger base of tons. People were saying China is going to get stronger. I didn’t get that because how could it get stronger relative to what was a fantastic 2021-2020? That didn’t make sense. What none of us foresaw was Zero-COVID from March onwards.

You already had the structural slow-down in the Chinese economy. That meant that China’s growth was going to be lower over the longer term. We had the de-leveraging of the real estate sector, which is worth 29% of GDP. You can look at our data at ICIS, and you see that a lot of chemical demand growth since 2009 has been driven by the real estate sector. The tremendous demand growth is leading China to have a bigger share globally than it had before.

TCSP 79 | China Market

China Market: You already had the structural slow-down in the Chinese economy. That meant that China’s growth was going to be lower over the longer term.


We knew that trend was working through as it pushed for more income equality, better capital allocation away from speculative property. That was going to moderate growth as well at the time. The government, through the year, thought they cannot relax Zero-COVID because the effectiveness of Chinese vaccines wanes over time.

Let’s talk quickly what Zero-COVID is. Zero-COVID was this policy that China had of no COVID transmissions. From the outside looking in, all it meant to me was more shutdowns whenever there was a case. What did Zero-COVID mean to China?

It meant we’re going to have zero cases. We’re going to aim to eradicate the disease, not living with it. Anthony Fauci is resigning, he’s retiring, and he said, which makes no sense whatsoever, “You can’t eradicate the virus.”

The Zero COVID Policy makes no sense whatsoever. You can't eradicate the virus through it. Click To Tweet

This is not a disease like polio where there was a global process to eradicate polio, cholera, or something else. COVID is a very different disease or virus.

It’s not serious to start with. Yes, it’s killed a lot of people. I’m not underestimating how terrible it is, but compared with cholera or polio, it can’t be eradicated. You have to live with it. China is never going to eradicate it. The problem is twofold. First, Chinese vaccines, SINOVAC, the effectiveness wanes over time. Whereas the mRNA vaccines, the overseas vaccines, they last longer. They’ve got very low vaccination rates among the over-60s and the over-80s.

They’re stuck at home and can’t get to vaccine centers for whatever reasons. They have low vaccination rates, and they’re the most vulnerable, and they will not import foreign vaccines. That’s the problem. The healthcare system, if they suddenly said tomorrow, “We’re going to get rid of Zero-COVID tomorrow,” everyone is getting excited about this, the relaxing of quarantine regulations. The markets went crazy.

It was estimated there may be 1.5 million deaths from the next wave. The hospitals are not equipped to cope with the number of serious cases in the context of the waning effectiveness of vaccines. That was clear from April of 2022. You could see that from reading the medical journals. When people said Zero-COVID is going to come to an end, we’ll have a massive boom in chemicals demand, there’s no doubt that will happen.

When they get past Zero-COVID, great. Chemical markets will boom as people come out and spend lots of money. Zero-COVID means you’re locked down in your condo, the restaurants and shops are shut. You are sometimes almost frightened to go out in case you get picked up and taken to a government quarantine center. Good friends in Shanghai are like that, “I don’t know if I should go out.”

For a while, it was a real problem delivering stuff to people’s condos because the delivery drivers didn’t want to go to a different suburb because the Zero-COVID rules vary by different districts. The rules are quite arbitrary. The local officials are trying to please Beijing by being extra zealous. It’s almost like we don’t worry about the economic damage. The issue is how did it get past this? First of all, they need to do something about vaccinations.

Secondly, they need to prepare for that exit way by investing in hospitals. As I said throughout the year, I was saying, “They are not going to end Zero-COVID anytime soon.” People say, “They’re going to end it.” We’ve seen the data on the chemicals market. Progressively through the year, we’ve seen with the net import numbers and our estimates of local production that were moving to negative growth or flat growth across the polyolefin. LDPE being the worst, but that’s to do with other reasons with the very expensive LDPE versus linear low.

Linear low minus 2%, polypropylene might just get to 1% growth possibly or flat. HDPE minus 2% thing and LDPE minus 6%. It’s the third year of decline. That’s what the latest stage is suggesting. At the start of 2022, people said, “We’re looking at 6% to 7% growth across linear HPP. Maybe low is going to be weak. People accepted that. There’s a massive change from expectations.

When you think about the growth or the negative growth, the losses, retraction, how much is that about export versus domestic demand in China? That’s hard to measure a lot of stuff getting produced into goods and then getting shipped. Is this a function not of moderation globally, but the whole Zero-COVID in China and shutting down the domestic economy?

It started with the domestic economy. It’s that loss of consumer confidence. I must mention the property bill as well. The government option was that we will never let land and property prices fall. That was in place for twenty years. People would invest in property 2nd or 3rd, 4th property, some rich people and they would buy land even though the property hadn’t been built on the assumption the developer would be fine financially because the government would always rescue the property developers.

That’s gone. Land and home prices are falling. That’s a big factor as well. You mentioned that’s a loss of domestic. As I said, you can link that booming stimulus since 2009 into chemicals demand and most of that stimulus went into real estate. You saw China retake off in terms of global share of consumption of chemicals and polymers.

Domestic people are not willing to spend money. They are shut at home for a while. They couldn’t get the deliveries of the stuff online. That’s a lot packaging. We saw reasonable export growth in pricing because the cost prices went up, but we’re now seeing significant volume falls of Chinese exports, which is 20% of GDP. Two things there. Logistics problems are still around the Guangdong province, an enormous export processing province.

TCSP 79 | China Market

China Market: People are now seeing significant volume falls in Chinese exports, which is 20% of GDP. This is happening because of logistics problems around the Guangdong Province and inflation in the West.


For example, Guangdong has got some lockdowns again. You’ve got the inflation in the West. There is an inevitable cycle out of durable goods demand post-pandemic as people have bought washing machines. You only buy a washing machine once every few years. You bought that purchase forward when you got government stimulus. That’s affecting that 20%. It is getting worse now that domestic exports have slowed down.

When we think about what has happened, what other surprises were there? If we look at where the year started and where the year is ending, are there any other surprises that have changed polyethylene, polypropylene in Europe and Asia? The effect is globally. It’s a global market, effectively.

I think the biggest surprise for me was that I thought China was doing a good job on the pandemic and it’s not. That surprised me. That degree from March onwards April, you start to say read the medical journals and you will see they have not been doing a good job on the vaccine on the pandemic because of the weakness of Chinese vaccines and the politics of importing foreign vaccines. To me, that was a big surprise. A second big surprise is the extent to which China’s cooperating rates. We haven’t seen that because China runs hard to keep people in jobs in the washing machine factory downstream. It’s not about profitability. You can see that from the spreads versus the operating rates over time. The data tells that.

It suddenly dawned on me, it’s not about profitability. It’s about demand. There simply isn’t enough demand, so they have to cut. If you can’t sell it, you can’t produce it. It’s not about profits which are off the charts. Polypropylene margins were $185 a ton negative for injection growth in Northeast Asia. It’s simply the fact there’s no demand. What’s further surprising to me is despite the big cuts in particularly polypropylene production, the market is still weak. That tells you the extent to which demand has been affected in China.

TCSP 79 | China Market

China Market: It’s not about profitability. It’s about demand. There is simply isn’t enough demand, so they have to cut. If you can’t sell it, you can’t produce it.


John, how much of this is affected by the Russia-Ukraine conflict that has been ongoing?

You can turn the attention therefore to Europe more on that inflation is not only in China as much and they’re getting cheap crude and stuff like that’s helping them. Looking at Europe, that’s big because of the demand destruction downstream in polyolefins, even in average shopping basket sizes. People are cutting back on the basics because of the cost of heating in the UK is off the charts. People take the choice of cutting back on essential food shopping and paying heating bills. Polyolefin is on demand again and the durable goods applications into let’s say autos is really struggling in Europe.

John, how much of this is a function of production cuts because of lack of availability of feedstocks or energy, in the form of electricity and fuel to power fuel boilers, and what have you? How much of this is demand destruction? Is it hard to separate?

The moment that the gas storage levels in Europe are good, it’s been a mild early winter. The gas price is more than half since its peak. At the moment, there’s not that much pressure on producers in terms of gas costs and supply as there was before. We all thought there was a scenario this winter we’d see major production cut banks, even the whole complex. Its integrated complex is closing down. You reach a certain operating rate.

In Germany, where over the years, the move from fuel oil to gas to fire, the furnaces get to 80 degrees centigrade or wherever it is very high temperatures. Germany’s dependent on Russian gas, not just from the grid for the furnaces. That hasn’t transpired. The issue more is demand. The margins have come down. We look at our average variable cost margins for polyethylenes and polypropylene in Europe, unlike Asia, they’re still making money much lower than they were. They’ve got energy surcharges as well. They’re introducing the surcharges to customers, which may or may not be included in our base price. It’s complicated.

That’s a hard one sometimes to factor.

It is more of demand restriction at the moment, Victoria. If you talk to our gas team and they’re saying, “We’re not out of the woods yet with this winter. It could get a lot colder.” Russia may reduce gas flows to Ukraine. They’re threatening to do that. There may be a problem in the buildup to next winter, depending on how much demand is reduced. There is a lack of LNG supply and regasification terminals and distribution. Spain’s got lots of regasification terminals, but no pipelines to link to Northern Europe. The gas team says, “Watch for next winter.” There’s a European production problem for chemicals potentially next winter and possibly later this winter. The moment, I see it more.

There could be a European production problem for chemicals next winter and possibly later winter. Click To Tweet

Do you think there might be a one-year delay or one-year lag in some of these production issues?

We got to watch that. The other thing for Europe is supply that you see people driving, the refinery feed starts are coming back, they’re flying. You get more availability of NAP through as you run for kerosene and diesel and gasoline. The US production had to be better than 2021. In 2021, there was a Texas winter storm, your hurricanes, and they still have those logistics issues that are restricting US exports, with the trucks and the rail cars and the warehousing. Look at the data for polyethylene exports and it’s up and you’ve got new startups, haven’t you? That’s easing the supply side of Europe as demand destruction hits at the downstream level. One of the things I’ve been talking about is the incredibly high premiums for Europe and the rest of the world over China.

Talk more about that. What are you seeing as premiums? Everybody’s seeing premiums and more regional market activity as opposed to global driving. What do you see as some of these differentials?

First, it was container freight rate being so high and lack of container space. That meant that oversupply was essentially trapped in Northeast Asia as China was slowing down through 2022. In fact, from April 2021 onwards, China was decelerating versus the peak pandemic demand as supply increased. The oversupply was trapped in essence in Northeast Asia because the big exporters couldn’t move that supply to other regions because of the costs and availability of container freight.

The Western hemisphere was kept tight by the winter storm, etc. All the pandemic stimulus was floating through the economy still then. I’m looking at Highland polyethylene injection grade, the average Northwest European, November 2002 to December 2020 premium, was $280 a ton. Between January 2021 and the 25th of November, $683 a ton.

TCSP 79 | China Market

China Market: The average Northwest European polyethylene injection grade from November 2002 to December 2020 was $280 a ton. But from January 2021 to the 25th of November, it rose to $683 a ton.


It’s almost tripled or it’s gone up 250% the pricing premium.

The question I keep asking is, “Will premiums come down to historic long-term levels and what would that mean for you?”

It’s a magic question, John. I think everybody wants to know that question.

You look at India, Pakistan, Vietnam, Peru, Mexico, Brazil, all see the same dynamics essentially. US is a different market.

What’s what about the Middle East? For years, the Middle East was the low-cost production center, they were the exporters to the world and yet nobody talks about it anymore. What do you see happening there? Are they chugging along quietly? What’s changed, if anything?

If you look at Saudi, that one’s the most important. They are the biggest producer in the Middle East. Looking at polypropylene, they’re diversified in that they’re not that dependent on China. They’ve got amazing production costs. Only 6% of their production, the polypropylene is dependent on exports to China. Only 6% of their total exports go to China.

I haven’t got the data for Abu Dhabi or QA. Saudi’s position on polypropylene is similar on polyethylene. The more diversified, they sent to more regions. That’s good. The problem for them is the loss of that China market with polypropylene China becoming a net exporter, which is extraordinary because in 2021, it was 42% of total net imports globally going to net export in 2023.

They would need to place those other missing volumes to China in other big net import markets like Turkey, Europe, Indonesia, Vietnam, etc. They’re in a better position. It’s because of the links with Europe. The challenge, therefore, in the Middle East is if those European premiums come down and China stays where it is, and those are two scenarios for 2023. The Middle East got to think about this.

Scenario one is to get past Zero-COVID. European premiums come down over China because China’s coming up. In China’s rising massive boom in demand, chemical prices will go strongly up, no question about it across the board. If you don’t get a Zero-COVID, then those premiums will start coming down. What does that do to Middle East profitability, even with the gas advantage? They’re making more money in Europe versus China of those premiums and in Latin America markets, in Turkey, etc. That’s the challenge for all producers, even for the fee stock advantage.

That’s scenario one. What’s your scenario two?

Scenario two is Zero-COVID comes to an end and we’re off to the races again. You got to think about common prosperity and the structural long-term slowdown in China and its writing self-sufficiency will remain long-term challenges for us. We’d see a big bounce if they get past it.

This whole topic of long-term structural slowdowns may be a strong word, less demand or flattening of demand, if we think about some of the drivers going on globally, sustainability, a drive towards circularity. A lot of pressure on producers, especially those that are tied to the stock market, which is, let’s say the US and European folks and China less so, although they have some different drivers. Some people would say we should be flattening polymer demand, polyethylene, polypropylene, and we still see growth.

Shell started up at its big polyethylene plant in the US, and that decision was made years ago. It takes a while to get there. Chevron Qatar just announced a big investment. There are a lot of investments going on. Where’s all the polymer going? Is there a long-term slowdown? Is the demand shifting in regions? Where’s the product going?

Looking at our data quickly because this is quite extraordinary. Between 2020 and 2021, annual capacity and excessive global demand was 4 million tons a year. Between 2022 and 2025, it rises to 11 million tons a year. Polypropylene, 2000, 2021, 7 million tons a year. 20 million tons a year between 2022 and 2025. We talked before the show. It had been the problem child for all other reasons. These are enormous numbers and changes. The low carbon thing is important because the Chevron project with Qatar has highlighted low carbon.

The demand for Polypropylene from 2000 to 2021 was 7 million tons a year. But from 2022 to 2025, it will increase to 20 million tons a year. Click To Tweet

The INEOS project of Antwerp is talking about low carbon based on ethane feedstock and the ability to go to green high if that works out at that same site. Substantial recycling as well. There’s also the Canadian project that Dow’s planning as well that talks about low carbon with E-crackers, nuclear reactors to power the furnaces and carbon caption storage, and eventually, green argon, if that works. All these things plus separate challenges with recycling plastic rubbish.

Maybe we’re talking about a world in which there will be growth. It will be lower. It’ll be more regional because Europe will need to import a lot of polymers. If you look at our data out to 2040, huge amounts of linear low H and PP, low Europe as an exporter. Where’s it going to come from? If Europe carries on its current course, I don’t see any reason why it won’t, they might have a carbon border adjustment mechanism.

You got the brand owners committed to reducing carbon as well as dealing with plastic waste. The producers respond, so Europe becomes a market which sets a higher price on carbon, a higher value to reducing carbon. That still will be a market that will grow long-term. You’ll need lots of polymers. Is that the play? Will we see less efficient capacity shut down?

It’s almost a different price set, low carbon polymers, or the sources? Maybe there’s not enough volume at this point in time to do anything with that but is that part of your future plans to be able to track traditional HDPE and then a low carbon HDPE that’s produced via circularity or incorporates other carbon capture, other technologies that make it more sustainable?

We’ve got a joint venture with the German carbon company called Carbon Mines. We’ve got our supply and demand database, which is got all the plants and projects in the world. The Carbon Mines team has the expertise to look at the different technologies and process technologies. We’ve got third-party data upstream to oil and gas extraction. We look at primarily the polymer plant and compare different processes and technologies in different regions. Different energy sources.

For example, in China, we know that polypropylene is eleven times worse for carbon if it’s coal versus PDH. China itself is at a disadvantage globally because it uses most of its energy via coal. We know that the US is in a very advantageous position relative to other regions because of the gas-based production, the same as the Middle East.

We have the data on every polymer plant in the world, which is going to be important information for your converters and processes in Europe and for your brand owners. This is third-party secondary data. It’s scope three emissions. If you look at it from the perspective of the downstream companies. That’s scope three for them. They’re suppliers. A lot of people will say, “We have our primary data and we know better about our carbon emissions than anybody else.”

A polymer producer will know better. I personally feel that there will be an alignment between primary and secondary data where individual companies will have their own standards, which is fine. We need to standardize enough to compare across companies to give it that extra stamp of credibility. I’m not saying it’s not credible already. Companies are doing a great job, but I think we can make it better and stronger by having international comparisons of carbon. You can start thinking, “Are we moving in the right direction globally?” This is the first step for ICIS. It will evolve. It’s a good start and this will become critical.

TCSP 79 | China Market

China Market: There will probably be an alignment between primary and secondary data regarding carbon emissions. It needs to be compared across companies to give it more credibility.


Is that information publicly available or available to your customers or is it still in development?

Yes. We have a joint venture with Carbon Mines. Yes, you can subscribe to each through ICIS. I’d be happy to present when customers are interested. I’ll get the experts from Germany to present. Not me. I’m not an expert on this at all, but they can present how it works. I don’t know, Victoria. This might be the logic behind these new projects. Even in Saudi, they’ve committed the next cracker. All future crackers will be low-carbon in Saudi.

You’ve got the BSF joint venture on E-crackers as well. Any investment in Europe will have to be low carbon. They might be retrofitting old capacity to make you low carbon as well. Is that the future in a more self-sufficient China and a lower-growth world? Interesting to speak to the C-suites and see what they think. You would think, on the surface, why would you announce these big new projects? That’s the driver in the developing world.

TCSP 79 | China Market

China Market: You’ve got the BSF joint venture on E-crackers as well. Any investment in Europe will have to be low carbon.


For some of this, the economics don’t match up. Some of the announcements are indications as opposed to certainties. There’s a lot of hope out there. I’ve read different things or hear from different experts in something like 50% of the technologies that we need to accomplish these sustainability targets and carbon targets, etc. that haven’t even been discovered. There’s steps in the right direction, but it’s not holistic solutions.

Dow talked about a need for a stable prior carbon pricing regime or a clear carbon pricing regime in the US to have carbon capture in Houston. The technology issue isn’t it as well, Victoria, but the anti-regulatory issue is another thing.

I would imagine, at some point, when there is a disparity in the approaches in terms of how products are produced, what’s produced under low carbon, and what’s not, that’ll further regionalize the markets.

CBAM will be a barrier that exporters have to overcome. If that does happen, not certain it will happen to chemicals, but possibly by 2026, the big thing again, as always, is China. Talking about carbon in a big way, if China were to go for it and it would fit with the need to escape the middle-income trap with the manufacturing value chain and come on prosperities about cleaning up the environment, international commitments to carbon. If they went for it in a big way and started making their chemicals industry low carbon while also pushing our modern recycling industry, which they’re already doing to some extent. Imagine the effects globally if that happened.

TCSP 79 | China Market

China Market: If China started making its chemicals industry low-carbon while also pushing for a more modern recycling industry, its effects on the global market would be unimaginable.


We even need to push this into another episode because we’re going to run long as we always do and that’s fine. There’s this view that China’s going to be retiring more people and more workers than they’re bringing into the system. That one-child regime, as it is managing and controlling the population, China’s population is going to decline.

When I think about some of the low carbon technologies and where they fit, not necessarily in polymers, but if you think about more broadly across the chemical industry, a lot of it is far less efficient. How China can bring on the low-carbon technologies that may be less efficient at a time when the workforce is diminishing as well, what does it do? Is it going to happen or maybe that drives innovation in a different solution?

It’s a separate subject. You get onto how global regulations develop. If we end up with a global price on carbon, it moves the cost cuts efficiently, and then it would work for China.

That’s what changes the game. The carbon price and the shifting.

They could make it domestically. They could do a lot to do that if they were then demanding low-carbon imports and they’ll have to import a lot of polyethylene. I’ve talked about self-sufficiency, but for the polyethylene, they’ll still be a big import for the next twenty years. I suppose big growth in recycling might reduce those imports. We’d only take it from low-carbon sources. That would reinforce that. The local producers would then match their own CBAM monthly in terms of price premiums maybe. I’d love to speak to the CEOs of Chevron one day. Maybe they’ll talk to us on the next episode.

That would be good. Get some insights. Let’s bring it back closer to home. We are about to enter 2023. What’s your prediction? What should we be looking for over the next year?

A razor-like focus on the governed messaging about Zero-COVID. Any reports you can get your hands on, on the extent to which they’ve breached the gap in terms of healthcare provision in terms of sufficient vaccinations for the over 60s and over 80s, because be careful what you wish for. If they suddenly said, “Zero-COVID is over,” you can’t see that being a benefit. Can you go backwards? You go forward and backwards very quickly, wouldn’t you? That’s the key because then the savings rates are high in China. People are not spending money. The willingness to spend money when Zero-COVID ends will be tempered by the end of the property. People will still come out and spend money.

This is difficult, but we’ve got to talk about it. Political unrest in China, social unrest, as we’ve seen. We need to watch that closely because there are now some serious issues in Shanghai. I’d say in terms of chemical prices, watch Zero-COVID. In terms of Europe, watch demand destruction versus support that will be offered to pricing if that’s the right term, by energy-related production cutbacks.

You wouldn’t do much for the profitability of producers, but it would support the markets in a negative way. I suppose the other thing to watch out is how the US is able to export your logistics issues. You’ve got a lot more polymers and you’re moving to a stronger net export position on polypropylene. There are new projects coming on mainstream next few years. You’re already a net export. It’s increasing over the next couple of years. That’s something else to watch and how that affects the global market.

Where do we see inflation in all of this?

Good news, I was reading again the Financial Times. It looks like container freight rates are now back towards pre-pandemic levels, which is five times higher according to their estimate. Maybe not on all routes, but average. High oil prices are a cure for high oil prices. We’ve got demand disruptions. There’s always a danger of more geopolitically driven energy disruptions, which could add to the energy costs that are very high.

Container freight rates are now back to pre-pandemic levels. The cure for high oil prices is high oil prices. Click To Tweet

We seem to be past peak inflation, I’m hoping. That’s a positive thing. Towards the middle or end of 2023, we’ll see that inflation pressure coming off in the West and that will support some recovery and demand. Going back to polymers, we have a huge amount of overcapacity. That 2022 to 2025 period I was talking about where you have 20 million tons a year over capacity and polypropylene, which is a record high, you’d think that most of the steel is in the ground for that period.

I would assume that most of that is on its way being built.

It has to happen. From 2022 to 2030, we have 18 million tons of surplus capacity. You would think a lot of that could get as well.

There’s always the opportunity for rationalization for assets shutting down. It depends on where they are in terms of location and how they fit on the cost curve. That’s the other solution to overcapacity. It is getting rid of capacity.

We’ve been talking about some of the stuff, I suppose, Northeast Asian assets, China being under pressure for many years, so we may see rationalization there. I’m not sure about Europe. It’s interesting whether some of the older crackers there might be under pressure.

They’ve rationalized a lot of them already, so I don’t know what’s left to rationalize.

Maybe not much. Something has to give. These are extraordinary numbers. We need to go through our project database and see what is new, what’s happening, what’s a debottlenecking that could be delayed, and some net numbers versus scenarios where we could reduce that oversupply and also over rationalization.

I would imagine, depending on how these advanced recycling projects develop, capacity is not always capacity, John. Some capacity operates much slower, depending on what’s being produced. It’s not clear to me how some of that’s playing out and if that will have an effect on net capacity.

We’re looking at the US projects and got 120 million, 320 million next year up to 1 million tons. That might be staggered more conservatively.

It’s easy to announce, it’s harder to build.

How does it operate into these conditions? We may have an issue around building as well as operating, technical issues around building, and starting up on schedule. The big issue is China’s polypropylene. One of the polymers, I’m not going to say which one it is, there’s another 16% capacity increase in 2023. They’re going to have to think about it hard now. It’s all well and good when we want to be a bit exporter of polypropylene, but where are they going to sell it and what netbacks? The netbacks are falling.

China’s polypropylene exports have been going up, and then they’ve started coming down since April 2022 because the netbacks are coming down because China’s pricing is dragging the rest of the world close to its level. That will have an effect in 2023 and they’ll be moderating. Our base case operating rates for China polymers are the lowest we’ve seen since 2000. Our estimates for 2023 are like 79%, 77%, 78% very low operating rates, which reflects the economics. Something has to give when we get back into balance.

TCSP 79 | China Market

China Market: China’s polypropylene exports have been going up, and then they’ve started coming down since April 2022 because the netbacks are coming down because China’s pricing is dragging the rest of the world close to its level.


Maybe that’s the theme for 2023. Something has to give. Time will tell. John, thank you. Thanks for joining us. I appreciate having you on the show, sharing your insights once again.

Thank you very much. It’s a pleasure.

Thanks, everyone. We will talk to you again next time.

Thank you.


Important Links


About John Richardson

TCSP 79 | China MarketJohn Richardson is a Senior Consultant at ICIS. John focuses on the polyolefins markets (polypropylene, polyethylene) in China, Asia and Europe.John has been very privileged to work with many of the smartest people in the petrochemicals industry over the last 22 years, helping steer their strategies in the right direction. Without fear or favour of internal company politics and conventional thinking, John provides the objective analysis you need to manage your business in today’s incredibly uncertain world.

ICIS is the global source of Independent Commodity Intelligence Services. ICIS connects data, markets and customers to create a comprehensive, trusted view of the global commodities markets, enabling smarter business decisions that optimize the world’s resources.


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