The China story is consistent even in higher-value polycarbonate

By John Richardson

IF THIS WASN’T SO critically important, I’d be getting bored by now of telling the same old story. As the slide below confirms, it is the same story in the engineering or higher-value polymer, polycarbonate (PC), as it is many other in chemicals and polymers.

In 1992, China, with a 22% share of the global population accounted for 3% of global demand. By the end of this year, we expect China to be responsible for 47% of global demand from an 18% share of the global population.

Why I am also staving off boredom is because of where I was born. The people of Yorkshire are famed for their stubbornness. I remain a proud Yorkshireman.

Here we go again:  Events in China (demographics, debts, its geopolitical relationship with the West and the big rise in China’s chemicals and polymers capacity) mean that today’s chemicals world is very different from that of the past.

Are you still not convinced? Then consider these ICIS PC data points:

• During the1992-2021 Chemicals Supercycle, China’s demand growth averaged 17% per in year. In 2022-2030 we are forecasting that that this will drop to 3%.
• In 1992-2023, China accounted for 76% of global net imports of PC among the regions and countries that imported more than they exported. As you can see from the chart below, China’s percentage shares of global net imports have been falling since 2021, the year of the Evergrande Moment.

The ICIS base case predicts China’s net imports will average just 460,000 tonnes a year in 2024-2030 compared with 1.1m tonnes during the peak years of 2010-2023. But 460,000 tonnes assume an operating rate of just 47% compared with the long-term average of 68%. Raise operating rates closer to 68% and you end up with China as a net exporter.

As I discussed in my 22 August post, however, a scenario is where China struggles to directly export chemicals and polymers where it is not already an established player and where there are other players which want to protect their market positions. This could apply to PC.

Returning to the subject of China’s PC imports, here’s today’s killer chart.

The chart shows ICIS estimates for seven of China’s top ten trading partners of their PC exports to China in 2023 as percentages of their total production. Note that there are substantial imports from overseas locations where PC isn’t produced, only distributed, so I of course didn’t include these countries.

In 2023, 83% of Taiwan’s production, 41% of Thailand’s PC production, 34% of South Korea’s production and 26% of Japan’s production was dependent on exports to China. A valid question therefore seems to be: What should these countries do next?

Today’s final chart is the same pattern we can see in styrene, polyethylene (PE) and polypropylene (PP).

What would it take to return to the very healthy global average PC operating rate of 83% in 1992-2023?

Assuming no change to our base case assumption on production (the same as demand), global capacity would have to fall by an average 138,000 tonnes per year versus our forecast that capacity will instead grow by 153,000 tonnes each year. This would mean a total capacity decline over the forecast period of around 1m tonnes/year versus the ICIS base case forecast of growth of 1.1m tonnes/year.

As I discussed in my 18 June post, I’ve been told that China’s chemicals industry has become more focused on differentiated products. This fits with expanding PC capacity.

What might be the answer for producers in countries such as South Korea? Becoming more differentiated than their Chinese competitors as they emerge as winners in the fourth industrial revolution: Sustainability.

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