China could become dependent on petrochemicals import in the long run

China may become dependent on petrochemicals import in the long run as it plans short term measures to curb over-capacity, as per Business Monitor International (BMI). In H1-09, ethylene output was down 6.8% yoy to 4.8 mln tons, while plastic in primary forms was down 0.1% to 16.5 mln tons and the manufacturing of plastic products was up 4.9% to 20.2 mln tons. While the results were poor by historical standards, Q2-09 saw some signs of recovery as a result of the government's economic stimulus efforts. In June, the fall in ethylene output had moderated to 2.8% and plastics output was up 3.2%. Inventories had largely been cleared along the supply chain and demand was showing signs of revival with an increase anticipated in H2-09. By end-2009, it is estimated that petrochemicals output has grown by 0.5%. However, exports are unlikely to recover until H2-10, while domestic demand growth is making a gradual but slow recovery. Domestic end-user demand for chemicals has been hit hard by the fall in exports, with external demand for textiles, garments and toys falling sharply. Sinopec saw petrochemical production decline in the first nine months of 2009, with ethylene output down 2.25% yoy to 4.74 mln tons, synthetic resins up 1.05% to 7.41 mln tons and synthetic fibre monomer and polymer up 0.65% to 5.73 mln tons (including output from BASF-YPC and joint ventures (JVs) between Shanghai Secco and BASF and BP). Output appeared to rally in Q3-09, assisted by the opening of new petrochemicals units. BMI cautions that while the global economy is in a phase of slowdown, Chinese expansions over the next two years could create a surplus of supply, if not in China then in the international market. We estimate there was a 2.15 mln tpa increase in PE capacity and a 2.25 mln tpa increase in PP in 2009. With BMI anticipating domestic demand growth of 2%, polymer market self-sufficiency should approach 75% PE and exceed 100% PP in 2010. Overexpansion of PVC production in China in recent years has led to a market imbalance. Demand for PVC has been rising in recent years because of increased consumption from the chemicals and construction industries. However, the China Chlorine-Alkali Industry Association says there will soon be too much PVC, with capacity accelerating further in 2009. Under China's petrochemical stimulus plan, China aims to boost its annual crude oil processing, fuel output and ethylene output to 405 mln tpa, 247.50 mln tpa and 15.5 mln tpa by end-2011. BMI believes that, on the basis of current projects, China could achieve ethylene capacity of 17.91 mln tpa by end-2011. However, there are growing concerns that the industry is growing too fast, yet lagging behind in terms of efficiency and cost competitiveness. In response to concerns raised in industry circles, the China Petroleum and Chemical Industry Association (CPCIA) has set out plans for the restructuring of the petrochemical industry. The guidelines recommend that China increase its ethylene output to between 21-23 mln tpa by 2015, which is below the 24.7 mln tpa BMI forecasts for 2014 based on current confirmed plans. If implemented, the strategy could lead to the cancellation or delay of two or three ethylene crackers and associated downstream units. "While we caution that China will face over-capacity amid a short-term downturn in demand growth, we believe that in the long-term the limits proposed for cracker capacity could make the country more import-dependent and erode its competitiveness," BMI said in its analysis. (PRLog)
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