China's economic challenges are becoming increasingly evident, as the country struggles to boost domestic consumption and faces a more difficult export climate [a0fd92a6]. Despite efforts to stimulate the economy, such as the record-high savings rates and modest growth in retail sales, China's debt-to-GDP ratio reached 110% in 2022 [a0fd92a6].
One area where China is experiencing significant growth is in the exports of polypropylene (PP). China's PP exports are projected to reach a new record high of 2.6 million tonnes in 2024, double the previous year's level [f076655e]. The surge in exports provides clarity on a global PP market that has been turned upside down. In 2020, China's PP exports for the whole year were just 424,746 tonnes, but between 2021 and 2023, they ranged between 1.3 million to 1.4 million tonnes. If the export momentum from January to May 2024 continues, full-year 2024 exports would reach 2.6 million tonnes [f076655e]. The geographic range of destinations for Chinese PP exports has also expanded, with significant volumes now going to South Asia, South America, and Africa [f076655e]. China's net PP and other petrochemical and polymer imports have decreased, indicating progress towards self-sufficiency. Net imports in 2019 were 4.8 million tonnes, but if the January-May net import trends continue for the rest of 2024, full-year net imports would be only 900,000 tonnes. China may eventually become a net exporter of PP [f076655e].
However, despite the increase in PP exports, PP spreads over CFR Japan naphtha costs remain the lowest since 2003. Until average PP spreads recover by 149%, the market will not return to the levels seen during the Supercycle [a0fd92a6].
China's surge in PP exports reflects a broader export push amid increasing trade tensions and overcapacity concerns in global PVC markets [433a7748]. The surge in PP exports is part of China's wider strategy to maintain GDP growth by relying on investment-led growth and exports. However, this strategy is becoming increasingly challenging as China faces an ageing population, weak healthcare and pension systems, and relatively low employee compensation compared to developed countries [433a7748]. The surge in PP exports is also indicative of the overcapacity in the petrochemical industry, which is a reflection of the broader economic situation in China. The low domestic demand growth for PP, combined with the increase in local capacity, has led to record-low operating rates and depressed prices [433a7748]. China's PP exports are expected to continue growing, but trade tensions may limit the growth and lead to a more balanced position with lower exports and few imports [433a7748]. The sustainability transition is seen as a way forward for the petrochemical industry, enabling producers in other countries to reinvent themselves despite the oversupply caused by events in and surrounding China [433a7748].
The global PVC market is also facing challenges, with a supply overhang and greater geopolitical risks. China's influence on global demand has grown significantly since 1992, with its booming economy driving petrochemicals demand. However, China's demand growth is forecasted to decline due to an aging population and infrastructure saturation. Global PVC markets are experiencing record levels of oversupply, with capacity exceeding demand. China has transitioned from being a major net importer to a net exporter of PVC. Trade tensions between China and the West, along with reshoring efforts, could lead to more protectionism in the global PVC market. The US has seen a surge in net PVC exports since 2006, driven by the shale-gas revolution. Big picture analysis of China's economic problems and the geopolitical landscape is crucial in understanding the PVC market [a169288f].
