BLOG: China PP Spreads, Margin and Demand Data Shows Market Remains at Multi-Decade Lows

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SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Animal spirits may be unleashed by the news that China will inject $44 billion in new stimulus into its economy following interest rate cuts.

But people won’t spend money if they don’t want to spend money. This is where the problem lies. Confidence has vanished because of the zero-COVID policy stalemate and a real estate bubble that cannot be reinflated. So we are stuck with a lower growth China, in the short, medium and long term.

But you don’t have to take our word for it. Granted, on our part it’s getting a little manic (meaning wild and over-enthusiastic) but let’s stress again: the best guide to the health of any economy is data on petrochemical spreads – the gaps between commodity prices and naphtha feed costs per tonne.

Spreads for many products tracked by ICIS in China have never been lower since our reviews began. Until or unless spreads return to historical averages, China’s economy will remain weak as petrochemicals are a critical part of manufacturing.

Polypropylene (PP), for example, as detailed in today’s post:

The average spread in 2022 through August 19 was only $262/tonne to naphtha. This compares to the previous annual low of $430/tonne in 2003.

It’s the same story with ICIS margin ratings:

From January 1 to August 19, 2022, northeast Asia variable cost PP integrated average margins were minus $7/ton from the next low year of $209/positive ton in 2021. This year’s averages break down as follows: only $2.2/tonne for PP-based PDH, less $78/tonne for naphtha-based PP and $54/tonne for LPG-based PP.

Please be careful there and don’t get caught on the wrong side of a market rally that either quickly dies out like faulty fireworks or doesn’t happen at all.

Editor’s Note: This blog post is an opinion piece. The opinions expressed are those of the author and do not necessarily represent those of CIHI.

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