Housing and autos are the 2 largest markets for chemicals. Both are in major downturns in China:
• The property market has been in a major decline since 2021 as MERICS note:
• “The value of new housing has fallen 60% since 2021“
• Auto sales are also tumbling and set to fall 22% this year, according to the auto association
Consumer sales are up just 1.1% this year. As the South China Morning Post reports:
“Consumers across China are holding back on spending during the annual shopping extravaganza as a stock market slump and a prolonged decline in property values erode household wealth, with many families making debt reduction and deleveraging greater priorities.”
In any normal market, chemical companies would be cutting back on new capacity. But not in China as the Financial Times chart confirms:
“Between 2020 and 2025, production of important ingredients for plastics soared — styrene by 97%, ethylene by 80%, polyethylene by 75%, polypropylene by 71% and PVC by 15%”.
The problem is that Beijing is focused on maintaining employment. Profit isn’t a key issue. So companies are refocusing on exports to drive sales growth.
Polypropylene (PP) is the world’s second largest polymer. Autos and housing are major markets.
The 71% increase in domestic capacity means that China is now starting to export surplus production, as the chart based on Trade Data Monitor statistics confirms:
• Its domestic demand was up just 2% in January-September versus 2024
• But domestic output was up 8% over the same period
• China has now started to be become a major global exporter
• Output was 107% of domestic demand, up from 100% in 2024
Inevitably this is having an increasing impact on the global market in terms of prices and margins.
Most companies aim to balance their output with demand. But China is different.
Its plants run to create employment. Profit is not a major factor. As the I.C.I.S. chart shows, its exports are having a major impact on global markets:
• NE Asia margins are now -$180/t; SE Asia margins are -$65/t
• Indian margins are just positive at $73/t; US Gulf/NW Europe are only $145/t
The downwards direction of travel is clear.
Polyethylene (PE) is the world’s largest polymer. China is also expanding its output:
• China’s self-sufficiency was steady at ~50% until 2020, as the chart shows based on Trade Data Monitor statistics
• But then China began a major stimulus programme to expand manufacturing exports
• Self-sufficiency rose to 65% by 2023, and it is now at 83%
• Current expansions, and today’s falling demand, mean it will likely be exporting by 2029
China seems to believe it has the right to expand output to maintain its own employment.
Profit is not important. For example, total auto industry profits collapsed to just 1.4% in September, versus 7.4% in 2017 before the current expansion began.
The same process is underway in petrochemicals:
• State-owned Sinopec is the largest petrochemical producer
• It has been losing money for several years – Rmb 1.7bn ($250m) in Q3 alone
• But it is still spending Rmb 16.8bn ($2.5bn) on new olefin/aromatics output
No Western company could afford to do this.
This is why it is critical that Brussels now brings in quotas to restrict Chinese imports. Otherwise, they will wipe out the European industry and the millions of well-paid jobs that it creates.
