Latest Quarterly China PE Spreads Review: Crisis Continues

THE ABOVE CHART again underlines the extent to which we remain in the deepest oversupply crisis the global PE industry has probably ever seen.

As promised, here is the January edition of my once‑a‑quarter update. Here’s last October’s update for reference. Next week, I will provide my second quarterly review of China CFR PP spreads.

The ICIS CFR China price assessments for HDPE injection, LDPE and LLDPE (C4 film) stretch back to 1993, just a year after the start of the 1992–2021 Chemicals Supercycle.

The global petrochemicals world changed in 2021

The data continue to support the view that the industry underwent a structural break with the Evergrande Turning Point in late 2021.

Beijing’s decision not to support the developer triggered the controlled deflation of China’s large housing bubble, which had underpinned demand for many downstream manufacturing industries. Real‑estate investment fell sharply again in 2025, declining by around 17.2 percent, according to official data.

PE spreads summary

• Spreads over CFR Japan naphtha costs fell sharply from $536/tonne in 2021 to $321/tonne in 2022, then moved to $288/tonne in 2023, $291/tonne in 2024 and $298/tonne in 2025. Early 2026 has weakened further to $252/tonne.
• The long‑term average for 1993–2021 was $532/tonne, compared with just $290/tonne from January 2022 to mid‑January 2026.
• By grade over 2022–2026: HDPE $213/tonne, LDPE $403/tonne and LLDPE $254/tonne. Returning to Supercycle levels would require increases of 129 percent, 48 percent and 102 percent respectively, or 84 percent on the overall average.
• For perspective, the previous major trough was $316/tonne in 2002. Adjusted for inflation, today’s levels are significantly weaker.

Using long‑term ICIS data in this way continues to filter out short‑term noise and highlight the underlying structural trend: chronic oversupply and historically low pricing power.

China’s economy still offers no demand‑side relief

Exports

China ended 2025 with a record trade surplus of almost 1.2 trillion dollars, with exports growing around 5.5 percent to roughly 3.77 trillion dollars despite steep declines in shipments to the United States. Strong increases to ASEAN, the EU, Africa and Latin America more than offset that weakness

In yuan terms, total trade reached 45.47 trillion yuan in 2025 with exports up 6.1 percent, reflecting China’s ongoing emphasis on manufacturing competitiveness and market diversification

But this was insufficient to compensate for the domestic economic challenges detaile below.

Demographics

Newly released official figures show China recorded just 7.92 million births in 2025, the lowest since records began in 1949. The birth rate dropped to 5.63 per thousand and the population shrank for the fourth consecutive year, falling to around 1.404–1.405 billion.

This deepening demographic contraction poses long‑term challenges for polymer demand across consumer goods, construction and packaging.

Property and investment

China’s property downturn continues to act as a major drag. Real‑estate investment fell by around 17.2 percent in 2025, and fixed‑asset investment declined by 3.8 percent, the first annual drop in nearly three decades. New‑home prices continued to fall in December 2025

The persistent weakness in housing undermines household confidence and reduces demand for plastics used in appliances, furnishings and construction.

Employment

The surveyed urban unemployment rate averaged 5.2 percent in 2025, with December at 5.1 percent.

However, even under a revised methodology, youth unemployment remained rise throughout the year, peaking around 18.9 percent in August before easing to 16.9 percent by November. This suggests continuing pressure on households and on early‑cycle consumer demand.

Consumer spending and prices

Retail sales rose 3.7 percent in 2025, but growth weakened toward year‑end, with December up only 0.9 percent year‑on‑year

Prices remain subdued, with full‑year CPI flat and December inflation at 0.8 percent. The producer price index stayed in deflation for the year at minus 2.6 percent, highlighting ongoing weakness in domestic demand and continued excess capacity.

Conclusion

Taken together, the PE spread data and China’s macro indicators point to the same conclusion: There is still no sign of a meaningful turnaround.

The PE global market remains structurally oversupplied, spreads remain exceptionally weak by historical standards, and the economic conditions needed to pull the industry into recovery—particularly a revival in China’s construction, household consumption and broader domestic demand—are simply not present.

This is combining with rising self-sufficiency in Chinese petrochemicals in general, not just including PE, and global capacity increases to serve overestimates of Chinese demand growth.

Although plant closures in high‑cost regions such as Europe and South Korea will help rebalance the industry over time, the pace is slow, and the scale of oversupply built during 2019–2023 is vast.

My view remains that the market is unlikely to show significant improvement for another three to five years, although as always, I hope to be proven wrong.

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