Revival of domestic petrochemical market coming after China eases COVID-19 control policy

From December 2022, China started to ease its policyon prevention and control of COVID-19 pandemic in the country, issuing the “newten rules” on 7^th this month which reduced limits on scope andfrequency of nucleic acid testing, canceled requirements on checks of thetesting results in ordinary places and cross-region population movement exceptspecial locations such as hospitals and schools, adjusted quarantine measuresimposed on confirmed cases, etc.

This marks a new stage in the country’s fighting withCOVID-19 after strict implementation of dynamic zero COVID-19 strategy forthree years, although specific measures taken by different regions vary.

From a mid- and long-term perspective, China’s overalleconomy and terminal consumption will be reviving along with the government’seasing the pandemic control policy. Yet, the changes in market demand in mostconsumer markets, including those for petrochemical products, will not beremarkable in the short term until the second quarter of 2023.

Market demand rebound will be small in short term

In spite of the relax limits on pandemic control inthe country, it’s foreseeable that the number of people infected will besoaring in the future, which will impose negative influence on stability ofemployment and citizen income. Therefore, consumption activities will berestrained in the short term.

In addition, the shortage of labor force and reductionor suspension of logistics activities around the Chinese spring festival willbe another key factors restricting the growth in market demand forpetrochemicals in a short time.

Some commodities, polyester for example, will becomeexceptions. As there might be an increase in the number of tourists during theChinese spring festival holidays in January 2023 after the pandemic controlpolicy eased, it’s possible that the demand for clothes and beverages duringthe holidays will rally significantly and stock supplementation will peak afterthe holidays, thus pulling up the market demand for polyester, as a rawmaterial of these products.

Overall recovery might be coming from 2023

It’s predicted that the limits on pandemic controlwill further be loosened in 2023 and consumption markets will be recovering ingeneral. By that time, market demand for petrochemical products will reboundfor the following reasons.

First, in the second quarter of 2023, after theChinese spring festival holidays ends, Chinese people may be graduallyreturning to a normal life after three months’ adaptation. When they shop,travel and eat outside as usual, there’ll be an increasing need of packages,plastic products etc, which will be supportive to market demand forpetrochemicals such as polyolefin.

Second, relax limits on pandemic control imposestricter requirements on people’s self-protection, and thus expenditures onmedical, public health and personal care products will be rising, pushing updemand for petrochemical products such as polyethylene (PE) and polypropylene(PP).

Third, the rising demand for new energy vehicles inthe country will also boost market demand for related petrochemical productsand rubber. The quantity of new energy vehicles sold in China has been on therise. Estimations from the China Association of Automobile Manufacturers (CAAM)on 9 December, 2022 showed that 26.8 million automobiles were sold in thecountry this year, up 2% year on year. The CAAM also predicted that the annualaverage growth rate of the quantity would come to 3% in 2023.

In the future, sales of new energy vehicles would beclimbing. As public transport might lead to higher risks of virus infection,people are tending to prefer private automobile to public alternatives. Underthis circumstance, the government may extent the time period of implementingpolicies such as reduction or exemption from vehicle purchase tax and grantinggovernment subsidies to vehicle purchasers to stimulate auto consumption to2023.

Increase in frequency of using automobiles will be adriver for market demand for tyres, then pushing up the one for rubber. It’spredicted that the annual average growth rate of market demand for styrene-butadienerubber (SBR) will increase from 2.5% to over 3% in 2023.

Fourth, the construction industry may embrace recoveryin the future as the government further lifts limits on pandemic control.Correspondingly, market demand for related petrochemical products willincrease.

The domestic demand for expanded polystyrene (EPS) thermalinsulation materials will peak in July~August 2023 during the peak season forbuilding construction activities, while the one for polyvinyl chloride (PVC),one of the materials used in the latter stage of building construction, mightbe recovering latter in the fourth quarter of 2023.