China’s economy is gradually recovering from the pandemic, but slow growth has eroded consumption. In addition, there are growing concerns about the prospect of US tariffs on finished goods imports from China and how this could impact Chinese demand for PE resin.
Gloomy macroeconomic picture weighing on demand
China is the largest PE consumer globally. In 2015-19, the average consumption growth rate increased 9pc and demand reached 34mn t in 2019, with an average 6.7pc GDP growth. During the first wave of Covid, PE demand increased to 38.4mn t in 2020, up by 14pc from the previous year. This was driven by growing manufacturing and exports of finished goods globally. As other countries started recovering, Chinese exports of finished goods declined and overall PE demand dropped by 4pc. After the pandemic, as quarantine policies were rolled back around the world, demand began to recover, with annual growth averaging 3pc. The 2022 energy crisis triggered by Ukraine-Russia war resulted in high inflation, and reduced demand for finished goods. But in 2023, China’s recovery increased consumption 2pc higher than the global growth rate, with the country’s PE consumption accounting for 34pc of the global total. Moving forward to 2024, China’s GDP growth rate slowed down to 4.4pc. Oxford Economics predicts a 3.8pc growth from 2024 to 2033 which is an indicator that China’s fast growth trend may not reappear.
Tariff tradeoff
A more recent concern is US president-elect Donald Trump’s plan to impose heavy tariffs on Chinese imports. An analysis of GTT data based on HS codes for Chinese plastic finished goods exports is shown in our chart. Only about 20pc of China’s exports of finished plastic goods head to the US. It is also worth noting that China’s total exports until October this year rose by 19pc from last year, which means this 20pc additional exports went to other regions rather than US. So US tariffs would not affect 80pc of China’s exports. China would be likely to try to increase exports to other regions, such as Latin America, Europe or India, and its net consumption of resin would not be affected much. For US producers, a major concern would be the impact of retaliatory tariffs on China’s resin imports, as occurred in 2018-19 when China levied a 34pc tariff on HDPE and LLDPE. US HDPE exports to China more than quadrupled to over 800,000t once the tariffs were lifted, while LLDPE exports jumped almost seven-fold to around 1.4mn t.
The weak macroeconomic environment has eroded downstream consumption, adding to an already long PE market. The key question is how China can stimulate demand and build advantages in export markets. In the second half of this year, the government has implemented various stimulus policies, including tax breaks and support for the real estate sector, and this does seem to have eased some of the pressure on certain segments. But it is uncertain whether these stimulus policies can drive a significant and sustained recovery. The overriding concerns for 2025 are how tariffs and any retaliatory moves will shape China’s demand. If we are to be guided by previous events, China’s demand for PE imports will continue, but its US resin imports could fall sharply.
Author: Elizabeth Zhang (张心怡）Business Analyst and Terry Glass VP of Polymers
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