China trade data for chemicals and polymers points to a dramatic swing in net imports, partly due to the new capacity added over the last 12 months. Imports are down, and exports are up. Despite the logistic challenges of moving the products and the powerful pull on consumer durables from China driven by US and European demand – much of which consume significant volumes of polymers and chemicals locally. The trade swings talk to the significant capacity additions and the relatively sluggish consumer within China, where spending patterns remain subdued because of the Pandemic. Even with a recovery in domestic spending, China has probably added 2 to 3 years of demand growth in current capacity adds – most notably for polyolefins and PET, but also for styrene, where we believe demand growth could be slowing. If logistics improve and container rates come down, the surpluses in China will have a severe negative impact on international prices. This development will likely be seen in either polymer quantities flowing faster/more freely around the globe or because the export rate of consumer durables will pick up even further at the expense of durable producers in the US and Europe.
But today, most in the US would dismiss this idea as far-fetched, given the strength in US propylene contract prices, polyethylene producers pushing for further price hikes in September, and the risk of ugly US Gulf Coast weather holding the potential for broad-based price support. In our Sunday Recap, we questioned whether we were in a brave new world for US chemical and polymers or just another unusual but cyclical peak – concluding it was the latter. The lost production of last year and earlier this year sent a bit of a shock wave through the US industry, and we suspect that consumers may have more inventory than a year ago – perhaps enough to weather a significant broad shutdown on the US Gulf. If this is the case, any underwhelming weather could mark the trigger for a pullback in both demand and pricing. While we do not have to tell the US polymer producers this – the rule in this industry concerning pricing is “get it while you can”. Read more in today's daily report.
Source: Bloomberg, C-MACC Analysis, August 2021
