China's petrochemicals market sees headwinds in H1 2024 amid property sector woes

China's petrochemicals market is set to remain under pressure into the first half of 2024, with the demand outlook for Asia's biggest petrochemicals consumer subdued by both its ailing property market and sluggish economic growth projections.

Earlier this year, the already-beleaguered property sector took another hit when local property giant Country Garden Holdings defaulted on its borrowings in October, just three months after the country's second-largest property developer, Evergrande Group, filed for bankruptcy. Market participants said that these developments have forced companies to abandon ongoing projects, leaving them in limbo and further deepening the property crisis in China.

While the Chinese government has rolled out several measures in an attempt to shore up and stimulate the economy -- including interest rate cuts and loan relief for developers -- market participants said that these steps have so far failed to inject meaningful aid into the property sector.

Trade sources in the petrochemicals sector said that China's ongoing crisis in the property market, coupled with the economic slowdown, will have severe repercussions for the industry in the coming months.

"No one knows when the property market crisis or economy will recover...so every buyer is maintaining a very lean inventory level," said one Chinese olefins producer.

"Everyone is holding very tightly to their purse strings," he said, adding that the buying patterns for Chinese buyers have changed, given the tighter credit crunch and bearish economic outlook.

Despite the downbeat tone, analysts said that the bearish outlook could be upended if China were to roll out more initiatives to aid the crisis-hit property sector.

A report published by the International Monetary Fund in early November said the Chinese economy is on track to meet the government's 2023 growth target, reflecting a strong post-COVID recovery.

"The authorities have introduced numerous welcome measures to support the property market, but more is needed to secure a quicker recovery and lower economic costs during the transition," it said.

The IMF noted that a comprehensive policy package should include measures to accelerate the exit of nonviable property developers, remove impediments to housing price adjustment, allocate additional central government funding for housing completion, and assist viable developers in repairing balance sheets and adapt to a smaller property market.

"Real GDP is projected to grow by 5.4 percent in 2023 and slow to 4.6 percent in 2024 amid continued weakness in the property sector and subdued external demand," according to the IMF report.

Cautious Chinese buyers

On the olefins side, a Korean propylene trader said that contractual commitments among Chinese buyers are lower for 2024.

"They [Chinese buyers] are requesting lower term volumes, and are eyeing more spot cargoes instead," the trader said. "Chinese buyers have no qualms on cutting term supply from overseas sellers given the growing availability of supply stemming from capacity expansions in China."

In terms of propylene, for example, China is expected to add around 4.01 million mt/year of production by H1 2024, with Fujian Meide's 900,000 mt/year propane dehydrogenation unit in January, according to market sources.

The surge in new capacity and expansions in China has also transformed trade flows, with the emergence of fresh spot supplies.

"I used to sell butadiene to the Chinese buyers, but now, they are producing [butadiene] and now offering to sell to me instead for 2024," said the same Korean trader.

Cash-strapped Chinese buyers have also begun to request that term suppliers extend a letter of credit on a 90-day basis, instead of the typical trading on letter at sight, trading sources said, adding that the difference in 80 days credit will result in higher costs of around $10/mt.

The bearish outlook on China's property market has also dented demand for petrochemical products such as phthalic anhydride or N-Butanol, which is used for paint coating.

"China's property market is still weak, this cannot push the demand for phthalic anhydride," a PA producer in Asia said in November.

Aromatics outlook mixed

For the aromatics market, industry sources said that Chinese demand is looking increasingly lackluster against the overall bearishness tone in the country's economy. PTA producers in China may opt to reduce operation rates as more PTA supplies are expected to come online in 2024, against a backdrop of squeezed margins and tight feedstock PX supplies.

Trade sources said that, while the downstream sector has maintained high operation rates through most of 2023, the same may be hard to replicate next year, on the back of weak demand cues.

In terms of other aromatic blendstocks, particularly toluene, gasoline blending has supported the market throughout H2 2023, due to fluctuating export quotas from China and healthy demand from Southeast Asia and the US, amid a global shortage of these products. This strength has detracted from adjacent downstream markets like benzene, which has been performing the worst among the BTX, trading sources said.

"I believe blenders will be [the] key outlet for all aromatics while the demand for solvents and chemical distribution should stay weak in H1 2024," a trader said, while noting a bleak outlook for global real estate and construction, especially in China.

"Decorative paint and industrial paint normally have [an] equal share. [But] I think now demand of decorative coating is poorer than industrial paint," the trader added.

Explore all stories

Chemical Trends H1 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

CFR Northeast Asia-FOB Korea olefins spread seen wider as competition intensifies

Gasoline demand, tighter supplies seen supporting 2024 Asia PX prices

Phenol/acetone markets anticipate additional capacity, weak demand

India remains bright spot amid struggling Asian chemicals markets

Propylene, polypropylene slump expected to persist in H1 2024

Recycled polymers demand set to ease in Q1 on regulatory woes, global uncertainty

Chemical makers call for more effective energy transition investment policies in 2024

No recovery in sight in 2024 for Europe's crisis-ridden chemical industry