In 2024 compared with 2023, China’s ethylene capacity exceeding local demand is estimated to have fallen by 1.6 million tons. But in 2025 compared with 2024, it is forecast to increase by 6.3 million tons to an all-time high of 11.5 million tons. This would represent a year-on-year increase of 121%. Actual capacity is due to increase by 9m tonnes in 2025 over 2024, the biggest annual increase on record.

Propylene oversupply is far worse reflecting the several routes to make propylene other than just the steam cracker – the only major route to produce ethylene. In 2024 over 2023, propylene capacity exceeding demand was at 2.7 million tons. This year compared with 2024 oversupply is expected to reach 7.4 million tons. Capacity exceeding demand is forecast to total 20.3 million tons in 2025, 179% higher than in 2024. Annual capacity is due to increase by 9.6 million tons in 2025 or 2024, which would again by the biggest annual increase on record.

The picture downstream varies. At least in the grades of polyethylene, capacity is expected to remain short of demand in 2025 although deficits will shrink. But in PP as the next chart details:

• Last year, ICIS estimated that China’s PP capacity exceeding its demand was 6.9 million tons. This is expected to reach 11.6 million tons in 2025, which would be an increase of 68%. As recently as 2009, China’s PP capacity was 4.4 million tons short of local demand.

So, how should GCC producers respond?

Here are the first of two figures summarizing what steps you should take  with the details immediately below:

Good Startup, Shutdown and Production Data has become Gold Dust

Capacity scheduled to come on-stream this year might be delayed until 2026. The first piece of advice is therefore to keep in touch with every scrap of start-up date and analysis.

Capacity is not the same as production. The following questions will need to be answered to estimate production. How will cost-per-tonne economics shape up? What will domestic consumption be like? To what extent will China be able to export its surpluses directly as polymer exports and indirectly as packaging for or components of finished goods?

“Come on, don’t tell me the blatantly obvious,” you might say. No. In the old Supercycle world, tracking the minute details of China’s plant start-ups and production levels wasn’t as critical as it is today.

Equally, of course, because we are in the midst of the chemical and polymer industries’ worst-ever downturn, you will need to effectively monitor how much capacity permanently shuts downs in disadvantaged regions such as Europe and South Korea.

Stay ahead on Tariffs and Trade Policy Changes

Being aware, ahead of your competitors, of the opening of new antidumping and safeguard investigations, and the timing of the imposition of duties during these investigations, is going to be another critical success factor. So will timely awareness of changes to standard import duties.

Multilateral free-trade deals could well accelerate as we move towards a more regionalised chemicals world. So could bilateral-trade deals under the Trump administration, as The Art of the Deal shapes economic as well as geopolitical relationships between the US and other countries.

Be prepared for anything from better US trading relationships with China to a major trade war and anywhere in between.

Equally important could be how effective you are in lobbying your governments in the event of increased competition from Chinese polymer imports or even just imports at the same levels as last year. In PP, China’s total exports just for January-November 2024 came to 2.2m tonnes versus 1.3m tonnes for the whole of 2023. As recently as 2021, China’s exports were just 425,000 tonnes.

Don’t overlook analysis of the value of currencies. Again, currency analysis has always mattered, but it is more important today because of the range of potential outcomes resulting from the Trump presidency.

The conventional wisdom is that the US dollar will continue to strengthen during 2025. For other currencies, most importantly the Yuan, this might counteract any higher import tariffs imposed by the US. But what if, for example, higher US import tariffs lead to an initial surge in the dollar, but then a weaker US economy and thus a decline in the dollar?

Here’s the second slide summarising what else you need to do with the details again described in detail below.

But in this Increasingly Muddled World, the Muddle isn’t just about China

Climate change isn’t some distant challenge but is instead affecting the “here and now” of chemicals markets because of increasingly erratic weather patterns.

During India’s monsoons, for example, PVC demand and pricing tend to dip because construction slows down with demand and pricing picking up after the monsoons. Downpours during the monsoons have become heavier and more unpredictable because of the increase in moisture in the atmosphere. Does this mean a change to the long-term historical pricing patterns for PVC in India?

Studies by the Indian Institute of Tropical Meteorology and the Intergovernmental Panel on Climate Change (IPCC) indicate that increased monsoon volatility threatens food security, as crops such as rice and wheat depend on consistent rainfall.

Additionally, irregular monsoons strain water resources, affecting drinking water supplies and hydropower generation. The economic consequences are severe, as over half of India’s workforce depends on agriculture, which remains largely rain-fed. Without improved water management and climate adaptation strategies, the instability of monsoons will continue to challenge India’s economic and environmental sustainability.

In other words, what will India’s economic growth be like in 2025, and thus its polymers demand, now that climate change is reshaping its economy? Can we do a control experiment whereby we look at growth would have been in India without climate change?

Climate change has significantly affected shipments through the Panama Canal, primarily due to prolonged droughts that have reduced water levels in Gatún Lake, the canal’s primary water source.

Lower water levels have forced authorities to impose restrictions on vessel size, weight, and daily transit capacity, leading to delays, increased shipping costs, and supply chain disruptions. In 2023 and 2024, severe droughts caused by El Niño and rising global temperatures led to a reduction in the number of daily ship transits, forcing many vessels to reroute around South America or seek alternative shipping methods.

Modelling complexity and saving time and costs through Artificial Intelligence

We are in a post-Supercycle world of far greater complexity. But AI – which is as significant a technology as other” general technologies” such as steam power, electricity and the internet – means we can model increased complexity. AI can also equal major time and so cost savings during the downturn.

In this FT AI in the Workplace video, journalist Isabel Berwick said that CEOs admitted that they had done the equivalent of “buying Ferraris for their employees [state-of-the-art AI access] without giving them driving lessons”. Two-thirds of desk-bound workers were not using AI at all, according to the same video.

Your success as a Middle East company could thus be significantly shaped by how you use AI. In this much more complex world, feedstock advantage isn’t by itself the route to success.