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Petrochemical capacity to expand in China in 2013

Petrochemical capacity to expand in China in 2013

31-Jan-13

China's petrochemical market is expected to see increasing capacity expansion in 2013 and beyond, while continuing economic growth bodes well for demand, as per ICB in ICIS. China GDP is expected to significantly outpace world economic growth in the coming years, although the rate of growth will slow, according to OPEC. It estimates global GDP will have grown at 3.1% in 2012 and at 3.2% in 2013. The US will show growth of 2.2% and 2% in 2012 and in 2013, and the eurozone will register growth of -0.5% and 0.1% during the two years. China is expected to grow at 7.6% in 2012 and 5.7% in 2013, while India will grow at 8% and 6.6% in the two years. Q4-2012 is likely to see low inflation. However, with rising food prices, greater inflation is expected to appear in the first half of 2013. As such, China is less likely to issue very loose monetary policies.

China will see increasing ethylene capacity in the coming years. Some major plants have already started up, in the latter half of 2012. Daqing Petrochemical started up its 600,000 tpa naphtha cracker in early September of 2012, Fushun Petrochemical started up 800,000 tpa cracker in end October, Heyuan Petrochemical plans to start up 240,000 tpa methanol-to-olefin (MTO) plant by end 2012. However, the actual output from these new plants will ramp up in 2013. There are still new plants to start up in 2013 - two naphtha crackers from Sichuan Petrochemical and Wuhan Petrochemical with capacities of 800,000 tpa each.
China's propylene capacity will show high-speed expansion through 2015. According to statistics from ICIS Chemease, propylene capacity will expand 11 mln tons from 2012-2015.
Polyolefins players also see capacity expansion as the main trend in for 2013. Qilu Petrochemical plans to start up its 250,000 tpa high density polyethylene (HDPE) plant in February or March 2013. Sichuan Petrochemical also plans to start up its 300,000 tpa HDPE plant and 300,000 tpa linear low density polyethylene (LLDPE) plant in 2013. Wuhan Petrochemical will also start up its 300,000 tpa HDPE and 300,000 tpa LLDPE plants in the middle of 2013. However, capacity expansions of benzene will be insufficient to meet demand, leading a further shortfall of benzene supply in 2013. Based on statistics from ICIS China, an increase of 1.3 mln tpa in domestic benzene capacity is expected in 2013, but the pace of growth is much slower than that in the downstream sectors. Therefore, China's benzene supply will be much tighter in 2013, and more imports are expected to flow into China.

China Capacity Expansions Downstream of Benzene in 2013

Crude oil apparent consumption in China will reach year-on-year growth of 2.8% to 482 mln tons in 2012, and record another rise of 6.2% to 512 mln tons in 2013. Processing capacity is likely to gain 2.9% year on year to 461 mln tons in 2012 and achieve another gain of 6.9% to 493 mln tons in 2013. Meanwhile, the import volume will rise by 12.9% in 2013, pushing the import dependence to a high range of around 58-59% for China. China will welcome a peak capacity increase in line with refineries' expansion projects and Phase II national oil reserves for the first three years of the 12th five-year plan period, according to statistics from C1 Energy, an ICIS service in China. Crude oil demand will grow quickly as a result. Chinese refining capacities have increased by 16.6 mln tpa or 3.3% in 2012. The compound annual growth rate (CAGR) of new capacities will reach 9.3% during 2013-2015, and the rate of China's crude demand will be 8.3% in the same period. The country will continue to record net exports of gasoline, gasoil and kerosene in 2013, but its imports of fuel oil will rise and be supported by the capacity expansion plans of teapot refineries. Net imports of bitumen and petcoke will rise in the year as well. China's oil products demand growth is likely to slow down in the coming five years due to the promotion of natural gas and electric power in the automobile market. The growth rate may be lower than its crude throughput, which is expected to increase by a CAGR of about 8% to reach 678 mln tons by 2017. By then, China will turn into an oil net exporter with about 2% of surplus capacity. In China, petroleum products are mainly consumed as transportation fuel and chemical feedstock. These two sectors will still record strong growth in the coming years. The government has not yet given a clear strategy and policy regarding to the use of major substitute energies such as electric power, natural gas and alcohol ether fuel in the transportation sector.

As per BMI's China Petrochemicals Report Q1-13 examines the short-term growth trends that are in play across the local industry as it ramps up capacity in an increasingly volatile export environment. As per the report, in 2012, petrochemicals demand growth underperformed the expansion of the wider economy. The country's domestic consumption of ethylene was estimated at 32.5 mln tons for 2012, growing at a slower annual pace of 3.8% compared with 4.9% in the previous year. Growth in polymers was around 4%, according to estimates, which was half the rate of GDP growth. Two factors were behind the slowdown in the petrochemicals market: the effects of the economic stimulus package of 2008-2010 which led to a surge in production and buying beyond what could be sustained in the medium term, leading to massive inventories, and the decline in industrial activity resulting from a slowdown in export trade. However, the effects on the industry have been more limited, with exports and output holding up well. While BMI estimates that ethylene production shrank 3.7% year-on-year (y-o-y) to14.7 mln tons in 2012, primary plastics were up 10.6% to 52 mln tons and plastic products grew 7.6% to 59 mln tons. Nevertheless, there was a perceptible shift in plastics output growth performance through the year, deteriorating to zero growth by Q3-12. BMI has revised the following forecasts/views:
* Despite the increase in capacity, the outlook for the Chinese petrochemicals industry in 2013 is clouded by oversupply in the real estate sector and a large inventory overhang in the manufacturing sector. On the upside, political uncertainty has abated as a result of the conclusion of the changeover in leadership of the ruling Chinese Communist Party.
* Growth in ethylene demand over the medium-term should lead to consumption rising above 40 mln tons by 2017, fuelled in large part by consumption of LLDPE. PE production will account for around 58% of overall ethylene demand. Meanwhile, Chinese ethylene capacity in China will increase to 33.7 mln tpa by 2017, a rise of 56% from 2012.

 
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