Impact of Public Health Event in NE Asia on China PE Market
In recent days, the public health event in South Korea and Japan attracted much attention. PE is a major commodity with 120 million mt of global volume of trade, and what impact will this event exert on China’s PE market?
South Korea PE Producing Pattern and Its Trading Activity in China
According to SCI, as of February 2020, the PE capacity was 5,574kt/a in South Korea. Herein, LDPE takes up 1,263kt/a, HDPE takes up 2,865kt/a, and LLDPE takes up 1,446kt/a. In 2019, the capacity loss due to maintenance in South Korea was around 300kt/a. SCI estimates that the PE output in South Korea was around 4,800kt, and the operating rate was around 86%.
The growth rate of imported PE from South Korea averaged 11.79% from 2017 to 2019, and the import volume reaching 1,200kt in 2019. However, the proportion of South Korean-origin PE dropped to 7.24% from 2017’s 8.19%.
SCI estimated that the PE output in South Korea was 4,800kt in 2019, and the demand for PE in South Korea was above 3,000kt. In the past three years, South Korea exported about 1,500-1,800kt of PE, herein, China took up 50%-60%. Besides, without sufficient capacity of ethylene, the capacity failed to be expanded, failing to raise their market share in China.
In general, SCI recons that the enterprises in South Korea will pay much attention to China’s PE market in the future.
Japan PE Producing Pattern and Its Trading Activity in China
As of January 2020, the PE capacity in Japan was 3,362kt/a. Japan mainly produce high-end PE, and the proportion of high-end PE is higher than that in South Korea. Only a few of Japanese-origin PE is exported to China. There are few HDPE blow molding, raffia, some off-grade HDPE and LDPE, and few MLLDPE exporting to China.
Taiwan Province PE Producing Pattern and Its Trading Activity in China
There are three enterprises producing PE in Taiwan Province: Formosa Plastic Group, USI Group and Asia Polymer. Herein, Formosa Plastic Group is the largest, owning a 240kt/a LDPE/EVA unit. The company mainly produces EVA exporting to China PR. There are 4 sets of LDPE units at USI Group, with the total capacity of 185kt/a. Asia Polymer only produces LDPE, and there are 2 sets of LDPE units, with the total capacity of 155kt/a. Besides, there are 110kt/a HDPE unit, 535kt/a HDPE unit at Formosa Plastic Group and USI Group respectively. There are 30kt/a LLDPE unit and 260kt/a LLDPE unit at Formosa Plastic Group and USI Group respectively.
Taiwan Province mainly exports LDPE to China PR, and the HDPE resources are mainly the HDPE film, raffia, pipe and cable wire at Formosa Plastic Group. The exports to China only take up less than 3% of the total exports of Taiwan Province, which has little impact on China’s PE market.
In the short run, the market trade will continue flowing. At present, the public health event is more serious in South Korea in NE Asia (China excluded), but both Chinese government and South Korean government do not issue any policy to restrict the trade activity between the two countries, and so does Japanese government.
However, if the public health event gets worse in South Korea and Japan, the economy in the NE Asia will suffer great losses, which will bring on supply and demand pressure on China’s PE market.
If that happens, the PE supply from the Middle East, SE Asia will increase. More importantly, there is a large amount of PE capacity in the U.S., which can be supplied to China. Besides, on February 18, 2020, the Customs Tariff Commission of the State Council (CTC) issued the Announcement on the Implementation of the Exclusion of U.S. Products Subject to Additional Tariffs in Market-oriented Procurement (CTC Announcement No.2 [2020], “Announcement”). According to the Announcement, CTC starts to accept the relevant Chinese domestic enterprises’ applications for the exclusion of the U.S. products subject to additional tariffs in the market-oriented procurement from March 2, 2020. Therefore, the Chinese enterprises can purchase U.S.-origin PE at a low price. However, if the demand for Chinese-origin plastics is low in South Korea and Japan, there will be no new market to import the Chinese-origin PE in the short run.
In general, much attention should be paid to the public health event in South Korea and Japan. SCI believes that if the event continues getting worse, China’s PE market will amid a bearish stance.
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