The global market for polymers has been slow for some time, due to economic uncertainties, the Russia-Ukraine war, rising interest rates, and inflation being observed in every part of the world. Due to freight rates skyrocketing in 2020-2021 and in the beginning of 2022, Asian polymers have been dropping in price to be able to compete with the other regions of the world. Although they were still having trouble competing with other players in the market, things changed when China lifted their Covid restrictions that were slowing down overall trade.
2021 and 2022 was not the best time for Chinese producers, due to them not being able to compete with U.S. and Middle East polymers with the current lack of demand.
Most producers turned away from the market to produce much more niche products like specialty plastics so that they did not have any competition, in search of stabler sources of income. The housing market in China being slow and expensive also contributed to this decision since the housing market is the main consumer for polymers in China.
Generally, China is a net deficit country regarding polymers. Due to strong domestic demand, polymer exports were not China’s strong suit. We are seeing a different story in the past couple of months, with China’s elevated export market being a fact. Lifting Covid restrictions resulted in much lower freight costs and due to prices being lowered due to high operation costs, this made China a popular export source in the global market.
As a result other regions and producers were also forced to lower their prices to be able to be competitive. Finished product inventories are still high in the area. Although the polymer market is cyclical with the peak season starting around August/September, the current shipping climate created a hot spot in China for India and other Asian regions. After everything is considered, Chinese PVC will be either equalized or slightly higher than its competitors. After that point, since China’s PVC demand is quite stable and bearish, price increases are unlikely.
Although there are some developments that benefitted the China’s polymer export market, they are not expected to be a net exporter producer for PE or PP, since they are aiming to be self sufficient instead of being a net exporter player. China’s net polymer deficit is still high at 13 million MT/year. For PVC, China is a fairly average player in the trade with 2 million MT exported. (Source: S&P Global)
India has been a big player in the Asian polymer market, they also have the advantage of having reliable demand while other regions are much more sluggish.
There was a big jump in Linear Low Density Polyethylene (LLDPE) imports in 2022 due to a major plant shutting down for almost 10 months, which drove demand way above the usual amount, especially in the Northern part of the country. The factory in question has resumed its operations, although it is expected that the trend will continue for some time since it’ll take some time for them to secure their previous deals domestically.
India has another important point to be aware of: monsoon season. It is expected to start around the second half of June, which will put a serious dent in the market. One of the biggest consumers of polymer being the drip and pipe business, the usual drop in their consumption of polymer (17% in LLDPE and 30% HDPE, according to the S&P Global guest Preeti Bhagat) during monsoon season will surely reflect in their imports.
A strong U.S. market for the past two years resulted in record high profits, so investments by petrochemical companies is also quite strong.
Companies are taking their time with investment projects, such as Shell’s 1.6 million MT Pennsylvania complex which was planned to be open in mid-2023 and has been postponed into early 2024 with two other complexes with the same purpose. We can say that stability is the basis of every decision made in the U.S. The biggest PVC producer in the world, Shintech, also postponed their Louisiana facility until the beginning of 2024. On the contrary to the U.S., Chinese investments are moving on schedule with no significant delays reported on their delivery date.
European and African markets are still going stable, even though their imports have dialed down significantly compared to pandemic levels.
Demand can still be seen on a sporadic basis. Since China export freight rates are significantly higher than other counterparts of the trade, U.S. and Middle Eastern products still dominate these markets. It is safe to say that we are going to see the same climate go on until the peak season starts in August/September.
Current data shows that other players, such as Taiwan and Korea, will be stable for the rest of the year, since they are facing the same issues that China faces including high export freight rates.
In conclusion, even though China has pushed their capacity, it still has a long way to go compared to U.S. and Middle Eastern producers due to them having very strong demand domestically. It is safe to say that as long as their growth continues, they will not need a global market since domestic demand will cover all of the existing supply.