China PP exports could reach 2.6m tonnes in 2024 as markets become ever-more complex

By John Richardson

SURE, the surge in container-freight rates might slow Chinese exports of polypropylene (PP) or at the very least narrow their geographic range. So could a rise in protectionism as we move towards a more de-globalised petrochemicals world.

But Thomas Cullen, chief analyst at Transport Intelligence, said on this week’s ICIS Think Tank podcast that global container capacity is growing by 20% per year. If the Houthi disruptions in the Red Sea were to come to an end, allowing greater traffic along the Suez Canal, freight rates would likely collapse, he added.

The protectionist mindset might last longer in some regions and countries, examples of which include the Brazilian chemical industry association’s call for higher PP and other polymer import tariffs and India’s Bureau of Indian Standards’ polymer import certification requirements.

In Europe, as I shall discuss in a later post, politics will determine whether the Antwerp Declaration leads to simpler, more consistent and stronger legislation across the 27 EU member-countries which supports local polymer producers.

My feeling is that today’s European politics will get in the way of the right kind of legislation. Substantial capacity closures therefore seem likely, creating a bigger opportunity for polymer exporters to Europe. Don’t assume that China won’t eventually be able to play a significant role in the European PP market as it increases the number of its higher value grade (see my later comments).

To paraphrase the opening line of the great 1980s TV comedy how, Soap, “Confused? You should be”. Confusion is the only sensible response to the end of the 1992-2021 Petrochemicals Supercycle.

Still, though, the data on the surge in Chinese PP exports provide startling clarity on a global PP market that has been, quite literally, turned upside down.

As recently as 2020, China’s PP exports for the whole year were just 424,746 tonnes. Between 2021 and 2023 they ranged between 1.3m to 1.4m tonnes. If the January-May 2024 export momentum were to continue for the rest of this year, full-year 2024 exports would reach 2.6m tonnes, double last year’s level.

The above table shows the percentage shares of total exports in January-May 2023 versus January-May 2024 by the top ten destinations.

If you again go back to 2020, what you see is a narrower geographic range of destinations. In that year, and in earlier years, China’s much-lower volume of exports almost entirely went to the ASEAN region with which China has a free-trade deal.  Now, as you can see, Chinese PP is travelling to South Asia, South America and Africa in significant volumes.

Here is another chart that offers some more clarity in all the confusion. China’s net PP and other petrochemical and polymer imports are key measures of its progress towards self-sufficiency.

Net imports as recently as 2019 were 4.8m tonnes. I think this is a more relevant comparison year with today than 2020 when net imports jumped to 6.1m tonnes.

2020 was a one-off, the result of the pandemic-related “China in, China out” story. China’s petrochemical imports in general were temporarily inflated as it re-exported finished goods to meet the surge in demand for physical things during lockdowns.

If this year’s January-May net import trends were again to continue for the rest of this year (to calculate this, you just divide by five and multiply by 12), full-year 2024 net imports would be only 900,000 tonnes. That would be nearly 3m tonnes lower than in 2019.

Unless trade tensions get in the way, China might be close to tipping into a net export position over the next few years where exports exceed imports.

And over the longer-term, don’t assume that China’s exports will just be of commodity grades. I wrote in my 18 July post:

One industry source described his visit to super-efficient very modern sites where the focus was on how China can make all the grades of chemicals and polymers it needed as it became a more developed economy.

This is said to apply to polyethylene (PE), PP and polyurethanes (PU) where local producers are reported to be tripling their range of grades as they broaden their licensing of technologies.

Seering through the confusion: Short-term implications

Amidst all the muddle, let’s assume one thing: That the disruptions in the Red Sea will continue for the next few months given the unresolved Israeli-Palestinian conflict. It was the conflict that led to the Houthi attacks on shipping.

This is a big challenge for the South Korean PP industry as Europe is an important destination because the South Koreans make a wide range of higher-value grades. This meets the region’s high converter-brand owner specifications.

The usual route to Europe from South Korea is obviously via the Suez Canal. The extra sailing time and costs of going around the Cape of Good Hope to avoid the Red Sea route to the Canal is said to be making South Korean PP exports to Europe much more difficult.

Given that South Korea has a free-trade agreement with Vietnam, watch to see whether more South Korean PP cargoes that cannot go to Europe end up in Vietnam.

My ICIS colleague, Jackie Wong, wrote in a 26 June ICIS news article: A southeast Asian trader expects to see more Korean cargoes coming to the region as inventory pressure builds on the Korean producers’ side.

Because they can’t sell to deep-sea markets, they have to move their cargoes somewhere else, another regional trader said. And southeast Asia (SEA) is a possible option they have.

More expensive container freight to the US is also said to be jeopardising South Korean PP exports to that destination – the sixth-largest destination for South Korean exports in 2023.

Also watch freight costs from China to countries outside SEA. China-India arbitrage is reported to have closed in June because of the increased costs of container space.

Will China also resort to more exports to SEA because of higher freight costs elsewhere? Under such a scenario, we must consider how the region’s big ASEAN-focused exporters – Thailand and Malaysia – would respond to protect their market share and earnings.

Even as things stood until May this year, Chinese exports to SEA in tonnes had substantially increased compared with the same months in 2023:

• In January-May last year, exports to Vietnam were at 82,024 tonnes. This rose to 182,799 tonnes during the same months of 2024.
• Exports to Indonesia were at 45,272 tonnes in January-May 2023. This year, they reached 95,718 tonnes.
• Shipments to Thailand jumped from 29,895 tonnes to 63,426 tonnes and the Philippines from 29,324 tonnes to 34,083 tonnes.

The muddle and the long-term

I don’t always get things right, of course. Nobody does. But the blog did make the right calls about today’s lower petrochemicals demand growth in China and higher self-sufficiency. The big changes occurred from September 2021 onwards.

What recent history teaches us is that to understand petrochemicals markets, you must follow debts, demographics and geopolitics.

Equally important, now that the Petrochemical Supercycle is over, are the effects of sustainability and climate change on petrochemicals demand and trade flows. The old ways of looking at market no longer work.

In the absence of a 100% accurate crystal ball, and with all these variables in play, the only sensible approach is broader and deeper scenario planning.

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