Shanghai, China, (April 26, 2021) recently, four market experts from ICIS participated in the 34th China International Plastics and rubber industry exhibition in Shenzhen, and held a seminar on industry decoding - exploring the new pattern of polyolefin market. At the meeting, several experts and industry insiders had an in-depth discussion on the Asian polyolefin market, focusing on the intensification of market competition caused by the continuous expansion of capacity. At the same time, they said that China would lead the recovery of polyethylene demand in Asia, and the "housing economy" spawned by the epidemic would promote the diversified development of polypropylene demand in the downstream.
Polyolefin capacity expansion continues and market competition intensifies
Since 2016, the global polyolefin industry has been concentrating on capacity expansion. Among them, Northeast Asia has become the world's largest polyethylene production area and the largest consumption area. In 2020, China's polyethylene production capacity accounted for about 35% of the world and is expected to increase to 37% by 2022, which is mainly due to China's leading global polyethylene production capacity expansion rate of 14% in 2021. In 2020, about 4 million tons of new polyethylene production capacity will be put into operation in China, and the overall domestic production of polyethylene will reach about 23.98 million tons, an increase of 13% over 2019. The increase of domestic supply has narrowed the price difference between standard and non-standard products, and accelerated the market competition of general materials. As North America reaches the peak of new capacity expansion in 2022, the surge of capacity in Asia will restructure the product structure of the Asian market.
China leads recovery of polyethylene demand in Asia
In recent three years, force majeure events have occurred frequently, and the accidental shutdown of overseas polyolefin units has increased. The severe cold and storm weather in the United States in February this year shut down many refineries and petrochemical plants in the Gulf region of the United States. In the same period, China's "local Chinese New Year" policy further accelerated the resumption of work in the downstream, improved the self-sufficiency rate and increased the opportunities for export to ocean. ICIS industry analyst Shuai Lu believes that, on the one hand, China's use of tax leverage to increase the export tax rebate rate of polyolefins from 13% to 16% in October 2018 is a great policy benefit; On the other hand, the regional comprehensive economic partnership agreement (RCEP) officially signed in November 2020 between China and ten ASEAN countries and 15 countries including Japan, South Korea, Australia and New Zealand has also further helped domestic polyolefins go out and promoted China's increasing position in the global polyolefin supply chain.
Epidemic economy promotes the development of polyolefin demand in many fields
COVID-19 has spawned the "home economy", and the demand for downstream polyolefin has increased further. Yu Ting of ICIS Asia petrochemical analysis team mentioned that the GDP target growth of more than 6% in the work report of the Chinese government this year indicates that China's demand will maintain a strong recovery faster than the global market this year. In terms of medical and health care, residents' awareness of protection has been improved, and relevant fiber products such as masks and disinfectant wipes have become necessary for daily life. Nucleic acid detection and new crown vaccination will boost the demand for medical grade random polypropylene. Referring to the Lili packaging industry, the first driver of polyethylene demand growth, the increase of home isolation and office has driven the demand for FMCG packaging and takeout packaging. At the same time, the vigorous growth of e-commerce consumption has further boosted the packaging demand of the express industry. In terms of small household appliances, the "looking for economy" at home and abroad has erupted one after another. Small kitchen appliances and personal care appliances have entered the counter trend growth, and some household appliances have entered the replacement and renewal period. There is still room for growth in market demand. Let's look at the new energy and automobile industry that has recently become the focus into the "golden decade". The travel restriction policy in first tier cities has triggered a tide of consumption of new energy vehicles, while the arrival of new energy vehicles in the countryside has activated the market demand of third and fourth tier cities. The entry of Internet enterprises has enabled the new energy automobile industry to enter the fast lane and develop rapidly.
Zhou Ying, analyst of ICIS Asia propylene and polypropylene, believes that the urbanization process and consumption upgrading will drive the continuous growth of polypropylene demand in Asia. In the short-term global market, countries can seek opportunities to achieve self balance. The mismatch between supply and demand in local markets will bring opportunities to enterprises and promote global circulation. In the medium and long term, the growth rate of supply and demand will match, and the contradiction between supply and demand in Asia will slow down. Wang Yeqing, a senior industry analyst at ICIS, suggested that market participants use the supply and demand data service of ICIS to track profits, predict the increase or decrease of polyolefin production in advance, pay attention to the profit price difference between internal and external markets, and grasp the arbitrage window and import and export opportunities. At the macro level, it is recommended to pay attention to the spot trend and grasp the changes of futures and cash basis in order to maintain market competitiveness.
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