BLOG: China Private Equity Demand in 2022: Latest Data Shows 2% Contraction as Confusion over Outlook Mounts

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SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

The China Beige Book, the independent economic analysis service, found that:

  • Chinese services and manufacturing companies saw a slowdown in the second quarter compared to the first quarter, reflecting the prolonged impact of COVID controls.
  • · Orders for domestic consumption and overseas export mostly fell in the second quarter. Orders for textiles and chemicals were among the hardest hit.

This matches what our contacts have said and what the ICIS data on polyolefins seems to indicate. Based on January to May 2022 figures, the demand outlook for polypropylene (PP) and high-density polyethylene (HDPE) for the full year appears to have deteriorated.

We fear that China’s options for restoring its economy in 2022 are narrowing.

At least in low density PE (LDPE), as we discuss, the outlook has not deteriorated. It’s small consolation, because it had already turned dark before May. Our last pessimistic scenario is that demand for LDPE could fall by 8% this year.

LDPE stands out from other polyolefin grades because price differentials of CFR LDPE in China versus CFR naphtha costs in Japan have held up very well this year. In PP, HDPE and Linear Low Density PE (LLDPE), spreads reached record highs.

The reason LDPE appears to be different is that supply has been reduced, thus keeping prices relatively high, as swinging ethylene vinyl acetate (EVA)/LDPE plants have shifted to increased production of EVA as demand for EVA seems to be exploding. EVA price premiums over LDPE are at or near record highs, according to ICIS price assessment.

And the price premiums of LDPE films over C4 LLDPE films have also reached record highs in China in 2022. The two resins compete for many of the same end-use markets. The supply of LLDPE is much longer.

Thus, it is not just the economy that concerns LDPE actors in China, but also these other dynamics. This may be the third straight year of negative growth in demand for LDPE in China due to these other factors – and now an economy that could be in recession.

Meanwhile, as with other grades of polyolefins, exporters of LDPE to China should also be concerned about a potential significant drop in Chinese imports of LDPE. Our worst-case scenario predicts that China’s net imports in 2022 will be about 500,000 tonnes lower than in 2021.

We are sorry that it is so dark and hopefully conditions will improve. But hope is not a strategy. The chemical industry must prepare for the worst scenarios.

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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