At present, the Chinese chemical market is howling everywhere. In the past 10 months, most chemicals in China have shown a significant decline. Some chemicals have decreased by over 60%, while the mainstream of chemicals has decreased by over 30%. Most chemicals have hit new lows in the past year, while a few chemicals have hit new lows in the past 10 years. It can be said that the recent performance of the Chinese chemical market has been very bleak.
According to analysis, the main reasons for the continuous downward trend of chemicals in the past year are as follows:
1. The contraction of the consumer market, represented by the United States, has had a significant impact on global chemical consumption.
According to Agence France Presse, the consumer information index in the United States fell to a 9-month low in the first quarter, and more households expect economic consumption to continue to deteriorate. The decline in consumer information index usually means that concerns about economic recession are becoming increasingly severe, and more households are limiting their spending to prepare for continued economic deterioration in the future.
The main reason for the decline in consumer information in the United States is the decline in real estate net worth. That is to say, the value of real estate in the United States is already lower than the scale of mortgage loans, and real estate has become insolvent. For these people, they either tighten their belts and continue to repay their debts, or give up their real estate to stop repaying their loans, which is called foreclosure. Most candidates choose to tighten their belts to continue paying off debts, which clearly suppresses the consumer market.
The United States is the world’s largest consumer market. In 2022, the US gross domestic product was $22.94 trillion, still the world’s largest. Americans have an annual income of approximately $50000 and a total global retail consumption of approximately $5.7 trillion. The slowdown in the US consumer market has had a very significant impact on the decline in product and chemical consumption, especially on chemicals exported from China to the United States.
2. The macroeconomic pressure brought about by the contraction of the US consumer market has dragged down the global economic contraction.
The World Bank’s recently released Global Economic Prospects report lowered the global economic growth forecast for 2023 to 1.7%, a decrease of 1.3% from the June 2020 forecast and the third lowest level in the past 30 years. The report shows that due to factors such as high inflation, rising interest rates, reduced investment, and geopolitical conflicts, global economic growth is rapidly slowing to a dangerous level close to a decline.
World Bank President Maguire stated that the global economy is facing an “escalating crisis in development” and the setbacks to global prosperity may continue. As global economic growth slows down, inflation pressure in the United States increases, and debt crisis pressure increases, which has had a ripple effect on the global consumer market.
3. China’s chemical supply continues to grow, and most chemicals face a very severe supply-demand contradiction.
From the end of 2022 to the middle of 2023, multiple large-scale chemical projects in China were put into operation. By the end of August 2022, Zhejiang Petrochemical had put into operation 1.4 million tons of ethylene plants annually, along with supporting downstream ethylene plants; In September 2022, the Lianyungang Petrochemical Ethane Project was put into operation and equipped with downstream devices; At the end of December 2022, Shenghong Refining and Chemical’s 16 million ton integrated project was put into operation, adding dozens of new chemical products; In February 2023, the Hainan million ton ethylene plant was put into operation, and the downstream supporting integrated project was put into operation; At the end of 2022, the ethylene plant of Shanghai Petrochemical will be put into operation. In May 2023, the TDI project of Wanhua Chemical Group Fujian Industrial Park will be put into operation.
In the past year, China has launched dozens of large-scale chemical projects, increasing the market supply of dozens of chemicals. Under the current sluggish consumer market, the growth of the supply side in the Chinese chemical market has also accelerated the supply-demand contradiction in the market.
Overall, the main reason for the long-term decline in chemical product prices is the sluggish consumption in the international market, which has led to a decrease in the export scale of Chinese chemical products. From this perspective, it can also be seen that if the exports of the end consumer goods market shrink, the supply-demand contradiction in China’s own consumer market will lead to a downward trend in domestic chemical product prices. The decline in international market prices has further driven the formation of weakness in the Chinese chemical market, thus determining a downward trend. Therefore, the market pricing basis and benchmark for most chemical products in China are still constrained by the international market, and the Chinese chemical industry is still constrained by external markets in this regard. So, in order to end the nearly one-year downward trend, in addition to adjusting its own supply, it will also rely more on the macroeconomic recovery of peripheral markets.