Metallurgy / Chemicals / Rubber & Plastics

Huacheng Import and Export Data Observation reported that since the beginning of this year, China's polyolefin import and export trade has shown a trend of decreasing import volume and increasing export volume. For the late-stage trade market, a recent research report released by ICIS believes that by 2023, three factors will affect China's polyolefin trade.

First, a large amount of new production capacity will still be released from the fourth quarter of 2022 to 2023; second, the exchange rate of RMB against the US dollar will continue to depreciate; third, the decline in sea freight is conducive to export trade.

In addition, if China continues to release economic stimulus policies, demand will recover strongly in the fourth quarter, which is likely to push more import sources to the Chinese market, Watson & Band Data Observation reports.

In terms of polyethylene (PE), China's PE imports have shown a downward trend with the increase in self-sufficiency. China's PE self-sufficiency rate is expected to increase by 2 percentage points month-on-month to 62% this year, despite the reduction in operating rates of many units.

According to Huacheng Import and Export Data Observation Report, more than 50% of the world's new PE production capacity this year comes from China. Lianyungang Petrochemical's 400,000-ton/year high-density polyethylene plant has been commissioned in August, and the operating rate will gradually increase; PetroChina Guangdong Petrochemical's new production capacity of 1.2 million tons/year PE is also planned to be released at the end of this year. With the release of these new production capacities, by the end of this year, China's PE production capacity will reach 29 million tons per year, with a year-on-year growth rate of more than 15%. However, ICIS believes that China will remain a net importer of PE, but it expects imports this year to be down compared to last year.

In terms of exports, ICIS believes that due to the increasingly abundant domestic supply of general-purpose PE grades, China's PE exports will continue to show an upward trend in the future. Driven by good demand growth in particular, some Southeast Asian countries will become major destinations for China's PE exports, especially Vietnam. From January to July this year, China's PE export volume was 440,000 tons, a year-on-year increase of 39%, of which 15% was exported to Vietnam, Huacheng Import and Export Data Observation reported.

In terms of polypropylene (PP), since 2021, China's PP net import scale is showing a shrinking trend - the import volume decreases and the export volume increases.

ICIS analysis believes that a major reason for the continuous decline of China's PP net import scale in recent years is the rapid growth of domestic production capacity. Especially from 2019 to 2022, China will release more than 11 million tons of new production capacity per year, with an average annual compound growth rate of 11%. However, the compound annual growth rate of demand in the same period was only 7%. The intensification of the contradiction between supply and demand has not only led to a decline in the operating rate of the industry, but also caused some production enterprises to actively seek export opportunities.

ICIS said that it is expected that China's PP will continue to export before 2023. However, as all parts of the world are facing excess pressure from capacity growth in the past two years, China's PP exports are not expected to increase significantly. Intermittent arbitrage circulation will still be the mainstream method.

In 2022, the new PP production capacity originally planned to be put into production will reach 6.05 million tons. Despite the impact of the epidemic and profit factors, as of September, only 1.6 million tons/year of new production capacity has been implemented, and the release time of 2.8 million tons/year of new production capacity has been postponed to the fourth quarter or 2023. Therefore, China's PP production capacity is expected to grow rapidly in the fourth quarter.

At the same time, the depreciation of the renminbi and the decline in international shipping costs also provided a greater possibility for China's PP exports in the fourth quarter.

According to the Huacheng Import and Export Data Observation report, the exchange rate of RMB against the US dollar has increased from 6.3 in March to about 7.1 on September 23. According to market news, the shipping cost of a 40-foot container from China to Vietnam has dropped from US$40-50/ton to US$20-30/ton, and lower fees are also heard. In the second quarter, the freight was as high as 80~100 US dollars / ton.

In addition, from the perspective of export destinations, China's PP exports in the fourth quarter will still be dominated by Southeast Asian countries, but it is not ruled out that some sources of goods will flow to Europe. Due to high costs caused by the energy crisis, European PP installations may see production cuts, increasing demand for PP in other regions. This is also beneficial to China's PP exports.

Taken together, ICIS believes that although China's polyolefin exports have shown an upward trend in the past two years. However, with the gradual release of new production capacity in Southeast Asia and South Asia, for example, Long Son Petrochemical's new plants in Vietnam totaling 950,000 tons/year of PE and 400,000 tons/year of PP are planned to be put into operation in the first quarter of 2023, and the local supply gap will decrease. China's export trade will also face challenges.