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China Petrochemicals Report Q3 2010
Management Report
Published: June 2010
Pages: 79
Tables: For full details, please email keithw@cmsinfo.com
From: GBP 353.33 Buy Now!
Research from: Business Monitor International
Sector: Petroleum
Overcapacity and uncertainty are likely to undermine the Chinese market’s recovery in 2010 with farreaching consequences for the global chemicals and plastics industries and the expectation of permanent plant closures in Asia and Europe as a result, warns BMI’s latest ‘China Petrochemicals Report’. The Chinese petrochemicals market is expected to be bolstered by a robust economic recovery that should see the domestic industry grow by up to 12% year-on-year (y-o-y) in terms of revenue and around 8-10% in volume. The sector posted turnover of CNY6.63trn in 2009, up just 0.3% y-o-y. In terms of polymer capacities, we forecast a 1.65mn tpa increase in polyethylene (PE) capacity and a 1.49mn tpa increase in polypropylene (PP) in 2010, ensuring polymer market self-sufficiency should approach 75% PE and exceed 100% PP.
Overcapacity and uncertainty are likely to undermine the Chinese market’s recovery in 2010 with farreaching consequences for the global chemicals and plastics industries and the expectation of permanent plant closures in Asia and Europe as a result, warns BMI’s latest ‘China Petrochemicals Report’. The Chinese petrochemicals market is expected to be bolstered by a robust economic recovery that should see the domestic industry grow by up to 12% year-on-year (y-o-y) in terms of revenue and around 8-10% in volume. The sector posted turnover of CNY6.63trn in 2009, up just 0.3% y-o-y. In terms of polymer capacities, we forecast a 1.65mn tpa increase in polyethylene (PE) capacity and a 1.49mn tpa increase in polypropylene (PP) in 2010, ensuring polymer market self-sufficiency should approach 75% PE and exceed 100% PP.
China’s annual PE demand is expected to grow by 8-9% in 2010 and 2011, but new capacity will reduce imports by up to 14% from the 7.4mn tonnes imported in 2009. Strong growth in construction, particularly in the north east, should secure an 8% y-o-y rise in polyvinyl chloride (PVC) demand to 12mn tonnes, with construction accounting for over two-thirds of the extruded PVC market. This is assisted by regulatory changes with energy efficiency requirements leading to a greater use of PVC in pipes, windows and doors. PVC packaging will also contribute to the sector’s growth as it is increasingly used as an alternative material.
However, the Chinese market is still volatile. As BMI has warned in recent months, the tendency of Chinese producers to flood the market whenever there is a sign of a sales upturn has put downward pressure on prices and has increased uncertainty. A tighter monetary policy has also worked against higher market growth rates. PE stock levels were built up in Q110 amid overly optimistic assessments, leading traders and distributors to work off excess inventories before buying again. Efforts to offload inventories on foreign markets have been frustrated by hesitancy among potential buyers, despite a spike in prices in North America and some emerging markets such as Turkey and India. A glut in supply in Southeast Asia also did not help matters in H110.
Increased capacity in China will also reduce imports in what is the world’s largest petrochemicals market, leading to a reduction in run rates globally from H210. A fall in imports will hurt South East and East Asian producers the most as they have grown dependent on the Chinese market for sales. Moreover, as they are reliant on naphtha feedstock, which is increasing in price in line with the price of crude and reducing margins, they will find it harder to compete with producers in the gas-rich Middle East that use ethane as feedstock. China will also become a net importer of naphtha in 2010 as new crackers come onstream, although the effects on prices will be offset in large part by an expected 25% reduction in runChina rates elsewhere in Asia. Consequently, BMI expects growth in capacity in China to lead to permanent closures in Asia and Europe.
Undeterred by the prospects of overcapacity, investment continues to enlarge the Chinese petrochemicals industry, led by state-owned petrochemicals producer Sinopec and its foreign partners. In Q110, Ineos Phenol and Sinopec Yangzi Petrochemical began planning a joint venture (JV) to build and operate China’s largest phenol and acetone manufacturing site at the Nanjing Chemical Industrial Park. The new facility will have capacities of 400,000tpa phenol, 250,000tpa acetone and 550,000tpa cumene. The project is expected to be completed in 2013. Sinopec has also revived its 800,000tpa ethylene project at Wuhan city, a JV with South Korea’s SK Energy which had been delayed for a year from its initial schedule. Work is now set to be completed by the end of 2012 with the plant coming onstream in H113. Downstream capacities will include 300,000tpa high density PE (HDPE), 300,000tpa linear low density PE (LLDPE) and 400,000tpa PP. Meanwhile, in January 2010, Sinopec and Sabic inaugurated their new US$2.7bn petrochemical complex at Tianjin. The 50:50 JV has a 2mn tpa chemical facility that includes a 1mn tpa ethylene cracker and eight downstream units and utilities such as PE, ethylene glycol (EG), PP, butadiene, phenol, and butene-1. Sinopec also indicated in Q110 that it was considering a partnership with ExxonMobil and Saudi Aramco to expand its existing integrated oil refinery and petrochemical complex in Fujian with a refinery to process 12mn tpa crude and 1mn tpa ethylene plant.
In BMI’s Asia Petrochemicals Business Environment Rankings matrix, China’s score has edged up by 0.5 points to 78.6 points. Although China’s petrochemicals market ratings are the highest in Asia, it remains weighted down by a relatively poor financial and trade infrastructure and negative risks specific to the petrochemicals sector, namely reliance on imported feedstock and overcapacity in some segments.
China’s annual PE demand is expected to grow by 8-9% in 2010 and 2011, but new capacity will reduce imports by up to 14% from the 7.4mn tonnes imported in 2009. Strong growth in construction, particularly in the north east, should secure an 8% y-o-y rise in polyvinyl chloride (PVC) demand to 12mn tonnes, with construction accounting for over two-thirds of the extruded PVC market. This is assisted by regulatory changes with energy efficiency requirements leading to a greater use of PVC in pipes, windows and doors. PVC packaging will also contribute to the sector’s growth as it is increasingly used as an alternative material.
However, the Chinese market is still volatile. As BMI has warned in recent months, the tendency of Chinese producers to flood the market whenever there is a sign of a sales upturn has put downward pressure on prices and has increased uncertainty. A tighter monetary policy has also worked against higher market growth rates. PE stock levels were built up in Q110 amid overly optimistic assessments, leading traders and distributors to work off excess inventories before buying again. Efforts to offload inventories on foreign markets have been frustrated by hesitancy among potential buyers, despite a spike in prices in North America and some emerging markets such as Turkey and India. A glut in supply in Southeast Asia also did not help matters in H110.
Increased capacity in China will also reduce imports in what is the world’s largest petrochemicals market, leading to a reduction in run rates globally from H210. A fall in imports will hurt South East and East Asian producers the most as they have grown dependent on the Chinese market for sales. Moreover, as they are reliant on naphtha feedstock, which is increasing in price in line with the price of crude and reducing margins, they will find it harder to compete with producers in the gas-rich Middle East that use ethane as feedstock. China will also become a net importer of naphtha in 2010 as new crackers come onstream, although the effects on prices will be offset in large part by an expected 25% reduction in runChina rates elsewhere in Asia. Consequently, BMI expects growth in capacity in China to lead to permanent closures in Asia and Europe.
Undeterred by the prospects of overcapacity, investment continues to enlarge the Chinese petrochemicals industry, led by state-owned petrochemicals producer Sinopec and its foreign partners. In Q110, Ineos Phenol and Sinopec Yangzi Petrochemical began planning a joint venture (JV) to build and operate China’s largest phenol and acetone manufacturing site at the Nanjing Chemical Industrial Park. The new facility will have capacities of 400,000tpa phenol, 250,000tpa acetone and 550,000tpa cumene. The project is expected to be completed in 2013. Sinopec has also revived its 800,000tpa ethylene project at Wuhan city, a JV with South Korea’s SK Energy which had been delayed for a year from its initial schedule. Work is now set to be completed by the end of 2012 with the plant coming onstream in H113. Downstream capacities will include 300,000tpa high density PE (HDPE), 300,000tpa linear low density PE (LLDPE) and 400,000tpa PP. Meanwhile, in January 2010, Sinopec and Sabic inaugurated their new US$2.7bn petrochemical complex at Tianjin. The 50:50 JV has a 2mn tpa chemical facility that includes a 1mn tpa ethylene cracker and eight downstream units and utilities such as PE, ethylene glycol (EG), PP, butadiene, phenol, and butene-1. Sinopec also indicated in Q110 that it was considering a partnership with ExxonMobil and Saudi Aramco to expand its existing integrated oil refinery and petrochemical complex in Fujian with a refinery to process 12mn tpa crude and 1mn tpa ethylene plant.
In BMI’s Asia Petrochemicals Business Environment Rankings matrix, China’s score has edged up by 0.5 points to 78.6 points. Although China’s petrochemicals market ratings are the highest in Asia, it remains weighted down by a relatively poor financial and trade infrastructure and negative risks specific to the petrochemicals sector, namely reliance on imported feedstock and overcapacity in some segments.