This implies capacity closures elsewhere to get to the 2 million tons a year of 2024-2030 capacity growth.

Global capacity would need to grow at an average 1% per year to achieve a 2024-2030 operating rate of 88%. This would compare with the 1992-2023 average of 4%.

It is the same in propylene, which is of course another major building-block chemical.

What would it take to return global propylene operating rates to the very healthy 1992-2023 average of 81%?

Assuming global production, which again is about the same as demand, stays unchanged from our base case, global capacity would have to grow by an average of around 1.2 million tons a year versus our base case of 7 million tons a year.

Advantaged projects in regions such as the Middle East again seem likely to go ahead and India looks set to double its refinery capacity by 2030, leading to a lot more propylene production.

This suggests capacity closures elsewhere to achieve the 1.2 million tons a year of 2024-2030 capacity growth.

Global propylene capacity would need to grow at an average 1% per year to achieve a 2024-2030 operating rate of 81%. This would compare with the 1992-2023 average of 4%.

The same story up and down just about every chemical value chain

The ICIS data also tell us that it is the same pattern up and down just about every chemical value chain. Let’s take polycarbonate (PC) as just one more example.

What would it take to return to the very healthy average PC operating rate of 83% between 1992 and 2023?

Assuming no change to our base case assumption on PC production, global capacity would have to fall by an average 138,000 tons per year versus our forecast that capacity will instead grow by 153,000 tons each year

This would mean a total capacity decline over the forecast period of around 1m tonnes/year versus the ICIS base case forecast of growth of 1.1 million tons/year.

The chart below details below the extent to why China has outperformed in consumption of nine of the major synthetic resins.

So, why, 12 months later, do we remain in this situation? These seem to be the reasons why:

• Before China’s Evergrande Moment in late 2021, the consensus industry view was that the country’s chemicals demand would grow at 6-8% per year. Now, 1-4% looks more likely, perhaps even lower.
• New capacities were sanctioned on the basis of growth at 6-8%, which largely explains today’s record levels of oversupply when one adds this important piece of context: China has caused such a big dislocation to the global industry because it dominates the global demand picture.

In 1992, at the start of the Chemicals Supercycle, China’s share of global polymers demand was just 9% from a 22% share of the global population. By the end of this year, ICIS expects China’s share of demand to be at 40% from an 18% share of the global population.

The Evergrande Moment in late 2021, which is referred to above, was the moment when China’s government decided not to financially support Evergrande, a major property developer.

This triggered a wider slowdown in China’s real-estate sector. The slowdown was compounded by the challenges of a rapidly ageing population. China’s worsening demographics haven’t of course happened suddenly. This a problem that has been building for decades.

Barring a root and branch reform of the pension and healthcare systems and a major overhaul of the Hukou residency system, all of which would take considerable time, economists question whether China can break out of low growth in domestic spending.

And the negative economic impact of the end of the housing bubble should not be underestimated. For example, some 20-30 million Chinese citizens are estimated to have paid for houses that haven’t been built because of the financial difficulties of property developers.

The timing of the recovery: Three or nine more years

In 2023, when delegates met for the EPCA event in Vienna, a common view appeared to be that the downturn was just a prolonged cycle of destocking. Many of the delegates were thus trying to discern whether there were any signs of restocking.

But at this year’s EPCA in Berlin, the mood felt very different. There appeared to be a broad recognition among senior executives that we are in a long-term and structural downturn with China at the centre of the crisis. Estimates of when we would climb out of the trough ranged from as few as three years to as many as nine years.

Returning to this article’s third chart, the one immediately above, the mega region of the Developing World ex-China is where the future of strong demand growth seems to lie.

Look at the table at the bottom-hand right side of the chart. ICIS estimates that the Developing World ex-China will account for just 32% of global polymers demand by the end of this year despite the region’s 68% share of the global population.

As people get richer, and they will inevitably get a lot richer in developing countries, they will consume a lot more polymers as polymers vastly improve the quality of our lives.

Countries such as India, Brazil, Indonesia, Turkey, Mexico and Vietnam seem likely to be the main drivers of this emerging trend.

Within this group, Turkey, Mexico and Vietnam seem set to benefit from relocation of export-based manufacturing from China. This is in response to increasing trade tensions between China and the West and China’s eroding advantage in lower-value manufacturing because of its ageing population.

But we need to again return to the data. The data suggest that it will take five or more years for improved growth in the Developing World ex-China to replace “lost growth” in China versus earlier expectations.

More painful adjustments lie ahead before we are going to get out of this downcycle. Further capacity closures seem possible in disadvantaged regions such as Europe and some parts of Asia.