What does China's self-sufficiency mean for the global PP market?

What does China's self-sufficiency mean for the global PP market?

This picture is not surprising given that China has added huge PP capacity in recent years to achieve self-sufficiency. By the end of this year, the country is expected to add 4.5 million tons of PP production capacity if everything goes according to plan.

“Some of these new plants may face delays due to existing weak margins and unfavorable market conditions,” several market participants noted, adding: “However, , the polypropylene world is about to have a new major supplier. And the question is how will this increase in capacity affect the global PP market.”

China is still the largest PP buyer, but its imports are decreasing

Despite the rapid increase in domestic production capacity, China still imports more PP than any other country in the world. According to Global Trade Tracker data, the country remains the largest PP buyer in 2021, with total imports reaching more than 4.6 million tons, accounting for about 13% of total global imports.

However, the data also showed that total PP imports into the country in the first half of 2022 fell 13% from a year earlier, to 1.98 million tonnes, marking the lowest volume since 2008. In the coming years, China's imported PP market will continue to shrink because of the addition of domestic capacity.

China's preparation to become a major exporter challenges global trade flows

Saudi Arabia and South Korea are the world's largest PP suppliers in 2021, accounting for about 21% and 9% of total exports, respectively. Next is China with a market share of nearly 6%.

Thanks to the addition of capacity – 4.5 million tons has been started up in 2021 and another 4.5 million tons is planned for 2022 – China is not only on the path to self-sufficiency but it also helps the country becomes a net exporter in the coming years.

As China's demand for imported PP is expected to decline further, major suppliers will be looking for alternative markets to divert their goods. That means Middle Eastern and Korean manufacturers will face an inevitable loss of market share within China and fiercer competition outside of China as China will also join the fray. play as a major exporter.

Where will PP Middle East and Korea go in the context of Chinese demand waning?

Trade data shows that the world's second largest PP buyer is Turkey. In 2021, the country imported nearly 2.4 million tons of PP, accounting for 10% of total global imports. Meanwhile, after Turkey were Vietnam, Italy, Germany and India last year.

“With China becoming self-sufficient, we think the first destination for Middle Eastern suppliers will be Turkey,” said one market participant. This could reduce the market share of Western European manufacturers in that country.”

Not only Middle Eastern suppliers but Korean and even Chinese suppliers may also target Turkey more in the future. In the first half of 2022, Turkey's top three PPH suppliers are Saudi Arabia, South Korea and Russia.

An Asian trader commented: “Korea's PP will focus more on Southeast Asia, or specifically Vietnam. Besides the potential flow of PP shipments to Korea, China and the Middle East, the region itself is ramping up production with new capacity. In the case of China being self-sufficient, Southeast Asian PP markets could face an oversupply for many years.”

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