China versus the rest of the developing world: The great reordering of polymers demand

By John Richardson

IN THE FIRST OF a special series of blog posts, I am going to examine Turkey’s chemicals and polymers demand growth prospects. This will be followed by posts on Vietnam, Mexico, India, Brazil and Indonesia.

These will be amongst the countries in the Developing World ex-China region that will eventually replace China as the main drivers of global chemicals demand. How quickly will this happen? We of course need scenarios.

But please do not get carried away in thinking that developing countries outside China will bring the global chemicals industry back into healthy balance anytime soon. During meetings at this year’s EPCA, senior executives forecast that the recovery would take anywhere between another three-to-nine-years.

Also bear in mind that even when markets do come back into better balance, we will never entirely return to conditions during the 1992-2021 Chemicals Supercycle because of long-term economic problems in China, increasing global trade tensions, climate change and sustainability pressures.

But volatility and change always create opportunities. A major aspect of increasing global trade tensions is of course China’s split with the West. This is one of the reasons why I believe we will see chemicals demand growth in countries such as Turkey being above consensus expectations.

Do remember, though, that in in the case of China, which is still by far the most important global demand driver, even the much more modest new consensus growth forecasts are very probably too high. In certain chemicals and polymers, negative growth in some future years seems to me very likely.

I am a new student to Turkey, having only made a business trip to the country for the first time a few weeks ago. Please therefore challenge what I write.

Turkey’s advantages and the history of its polymers demand

Per capita consumption is an inexact measure of real local polymers demand. What’s not considered in charts such as the one above are the quantities of polymers that are exported either as components of finished goods or as packaging for finished goods.

But there are no exact measures of real country-by-country demand because of the inability to globally track the destination of every tonne of polymer that’s consumed in every manufacturing and services sector. In general, our measurements of demand are, in my view, are pretty feeble, which is a theme for another today.

For the time being, we obviously though have to work with what we have, so let’s consider what the above chart is telling us.

Quite obviously, because Turkey is a much-poorer country than the US (the green line), Turkey (the blue line) cannot on a real per capita basis be consuming more polymers than the US by 2030. Neither will Turkey’s consumption have been as close to the US before then.

This chart is instead a great indictor of the importance of manufacturing for driving a country’s crude, unadjusted polymers consumption. The decline in manufacturing in the US helps explain why the country’s per capita demand for polymers has weakened versus Turkey and China, despite the US being a much richer country.

Turkey has long been the manufacturing outsourcing destination of choice for the EU, thanks to its membership of NATO since 1952 (it is therefore on good terms with the West in general), and its membership of the EU Customs Union since 1996.

Plus, of course, there’s Turkey’s great strategic location. The country acts as a bridge between Europe, the Middle East, North Africa, and Central Asia, offering exporters access to all these different markets, some of which are booming.

These geographic advantages, coupled with its extensive infrastructure—including deep-sea ports and a well-developed transportation network—make it an ideal hub for manufacturers targeting both European and regional markets.

Demographics, at least for the next 20 years or so, are still on Turkey’s side as it remains a youthful country (see later comments in the section on Turkey’s challenges).

Then there are the growing trade tensions with China. But the reality, as I discussed in my 22 August post, is that the West will still have to do business with China in the many manufacturing value chains where it is dominant such as electric vehicles and solar panels.

The “window dressing” of appearing to take reshoring seriously will be to increasingly do business through third-party countries such as Turkey, Mexico and Vietnam.

This process is already well underway. It seems probable that more and more Chinese investment will move to these third-party countries to get around higher import tariffs and antidumping duties etc, a case in point being BYD’s plans to build a factory in Turkey.

Sure, trade flows and so chemicals demand could be volatile as the West to some extent plays a “whack-a-mole game” by imposing trade restraints directly on Chinese factories in these third-party countries.

But I suspect pragmatism will rule the day because of China’s dominance of manufacturing supply chains. Trade restraints on overseas Chinese factories seem likely to be sporadic and inconsistent (hence the volatility). These measures won’t, I think, amount to changes in trade flows that seriously damage Turkey and Mexico etc.

Before we look at what could happen next to Turkey’s polymers demand relative to that of China (the orange line in the chart above), let’s look at the history of its polymers’ consumption.

Back in 1992, at the start of the Chemicals Supercycle, Turkey’ s per capita polymers consumption was just 11kg.  In 2001, China joined the World Trade Organisation.

This was another critical milestone in the Chemicals Supercycle. Turkey’s per capita consumption was 27kgs remaining ahead of China. This was the case even after China’s giant economic stimulus package in 2009.

As the Supercycle came crashing to an end in 2021 because of the Evergrande Moment, Turkey’s per capita consumption was at 82kgs versus China’s 76kgs.

As you can see from the ICIS chart, we expect China to finally overtake in 2025. But we need other scenarios.

Turkey’s challenges and what could happen next with its polymers demand

In a trip to see an ICIS client in a manufacturing hub southeast of Istanbul, my colleague and I probably saw more factories in 100 kilometres than in the whole of the UK.

This was despite the challenges of very high interest rates and a heavily depreciated and a highly volatile Turkish Lira. Real interest rates were higher than the official rates and the Lira weaker than the official exchange rate, we were told.

One wonders how much time companies spend playing arbitrage games, and managing cash in and out, versus actually making things. Maybe it is no coincidence Trading Economics data show industrial production fell in January-August 2024 on a year-on-year basis.

But the businesses we met with were confident that inflation would continue to head in the right direction following a decline from June to August.

The August inflation rate was still, though, ten times higher than the central bank’s target. And last year’s sudden shift from an unconventional approach to tackling inflation to an IMF-approved programme of fiscal constraints obviously carries political risks.

One can argue that Turkey’s good relations with the West, Iran, Russia and China also carry political risks. Might Turkey be forced to choose sides if we are heading towards a bipolar world and what would that do its advantages in trade?

Then there are Turkey’s long-term demographics to consider.

“Turkey’s demographic future faces uncertainty as 2023 saw a record-low birth rate and an ageing population, signalling a shift towards the demographic trends of more developed countries,” wrote the Centre for Eastern studies in this 7 August article.

“While regions vary widely—south-eastern Turkey has a younger, more fertile population, and the northern Black Sea areas are older—overall, the nation is undergoing significant changes driven by urbanisation, cultural shifts, and economic challenges,” the article continued.

The rate of population growth had slowed with live births per woman at 1.51, below the population replacement rate of 2.1. While Turkey’s fertility rate was still above the EU average, the Centre added that projections were that Turkey’s population growth would stop by 2047.

Turkey’s population remained younger than the EU average, but the median age rose from 25.8 in 2000 to 34 in 2023. The share of people over 65 would soon outpace children under 15, likely in the 2040s, the article added.

Social tensions were reported to be limiting migration to Turkey with emigration by young people at record levels in 2023. Government policies to deal with declining birthrates and support mothers in the workforce had yet to take root, claimed the article.

But such polices may take root. And migration from the southeast to the northern regions might be part of the solution as could moving up the manufacturing value chain to maintain competitive advantages. Turkey’s education system seems to place it in a good position to achieve this.

“The level of education in Turkey is considered very high, especially in higher education. The education system in Turkey for all educational levels ranks second globally in terms of access to higher education, with a rate of 94.2%,” wrote the Directly Educational Consultancy in this 16 September blog post.

“This high percentage reflects the quality and accessibility of higher education in Turkey compared to other countries,” the post continued.

As I said, the ICIS base case sees China’s per capital polymers demand growth overtaking that of Turkey by 2025.

In our base case, we assume China’s average annual per capita polymers demand growth will be at 3%, leading to China’s per capita consumption being at100kgs in 2030. But we only expect Turkey to grow at 1%, leaving its 2030 per capita demand at 91kgs.

For argument’s sake, let’s turn these assumptions on their heads. If Turkey were instead to grow at 3% per year and China at only 1%, Turkey’s per capita consumption would be at 105ks versus China’s at 87kgs.

But switching the growth rates around in this week would leave China’s polymers demand on a cumulative basis, for all the years between 2024 and 2030, 84m tonnes lower than our base case (by multiplying China’s population by per capita consumption in kilograms and converting to millions of tonnes). Using the same approach would see Turkey’s consumption just 5.3m tonnes more than our base case.

This of course reflects China’s population being vastly bigger than Turkey’s. What if, though, we carry out a similar exercise for China versus Turkey, India, Vietnam, Mexico, Brazil and Indonesia? This will be the subject of future posts.

There will many opportunities, some temporary and some permanent, as the Developing World ex-China in general overtakes China is the No1 driver of global polymers demand. This is why I’ll be focusing heavily on this region over the next year.

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