China's petrochemical majors compelled to reduce output to prevent ruin of SMEs

04-Nov-08

In a move to prevent the devastation of small-to-medium enterprises (SME) by the global economic crisis, China's petrochemical majors are being compelled to cut output. 67,000 previously profitable SMEs have collapsed during H1-08 as per data from government think-tank National Development and Reform Commission, mainly because SMEs were facing difficulties accessing credit. Several SMEs in the Yangtze River delta and Pearl River Delta have shut shop, as they are unable to withstand the risk of bankruptcy, impacting the demand for raw materials. Xinhua reported toy makers in the Dongguan, Guangdong province have folded up as demand has substantially weakened. As reported by ICIS, Sinopec, the country's largest petrochemicals producer, plans to cut cracker operating rates this month, cutting output by a total of 100,000 tons for polypropylene (PP) and polyethylene (PE) to cope with high polyolefin inventories and weakening downstream sales. PE and PP makers - Yangzi Petrochemical, Shanghai Petrochemicals, Qilu Petrochemical, Tanjin Lianhe Chemicals and Maoming Petrochemicals have announced halving of production this month in response to slowing demand downstream. Guangzhou Petrochemical, a Sinopec subsidiary will reduce operating rates at its 80,000 tpa SM plant by 30% in November, and utilise all output for captive use for its own downstream polystyrene (PS). Maoming Petrochemical is running its 100,000 tpa SM plant at 90% capacity. In the domestic epoxy resins sector, production was kept at very low rates - below 50% for liquid products and 10-20% for solid ones, market sources said.