Increased demand, Petrochemical industry, China to drive global recovery to 2015, Polyethylene Terephthalate, PET consumption

Increased demand from petrochemical industry in China to drive global recovery to 2015

Increased demand from China will drive recovery in the global petrochemical industry to 2015, as per GlobalData. The Chinese petrochemicals industry is the fastest growing petrochemicals industry in the world. As with other petrochemical markets, the Chinese petrochemicals market stumbled as recession slowed down growth, but stimulus packages and strong demand from its large domestic market helped in its revival. The Chinese petrochemicals industry is imports-dependent, which will continue to benefit the producers in other countries such as Saudi Arabia, Japan, Korea and the US. These countries can extend their excess supply to the Chinese market. The fast growing Chinese market is attracting foreign producers who are entering into joint ventures with Chinese producers to establish manufacturing facilities in China. Demand for basic petrochemicals and major plastics in China has increased from 37.949 mln tpa in 2000 to 100.843 mln tpa in 2010, at a CAGR of 10.3%. The demand growth rate in China is high as compared to the production growth rate, which makes it dependent on imports to meet its domestic demand. The growing Chinese demand in the recovery phase provides opportunities to producers in other countries who can export their excess supply to the Chinese market. Major Asian countries such as Japan and South Korea have benefited most by exporting to China. In 2010, Korea accounted for 31% of China's total basic petrochemicals imports and 21% of major plastics imports, while Japan accounted for 23% of China's total basic petrochemicals imports and 9% of major plastics imports.
As per Business Monitor International, Chinese petrochemicals output growth appeared to be moderating in H1-11 as tightening lending conditions led to a lower rate of domestic consumption growth. In 2010, ethylene output grew 32.2% y-o-y, to 14.19 mln tons, primary plastics grew 18.3% y-o-y, to 43.61 mln tons, and plastic products grew 21.1% y-o-y, to 58.31 mln tons. The growth trend was consistently upwards throughout most of 2010, indicating that a recovery was being sustained despite the rapid rise in production in the Middle East and a large polymer inventory at the beginning of the year. However, there were signs of moderation from December 2010 with ethylene and primary plastics output failing to beat November highs but staying stable, while plastic products dropped. In the first four months of 2011, ethylene output was up 34.3% y-o-y, to 5.26 mln tons, primary plastics output was up 8.9%, to 14.99 mln tons and plastic products output was down 0.4%, to 15.88 mln tons. Meanwhile, China Petrochemicals Corporation (Sinopec) reported that chemicals prices increased, with its output of ethylene and synthetic resins rising 26% and 20% in the quarter. The moderation in output is related in part to the tightening lending conditions amid government efforts to combat inflation. This situation has primarily affected the construction and automotive sectors, which had made orders on the basis of assumptions of strong growth levels. Capacity continues to grow as China maintains its position as the world's petrochemicals consumption growth driver. In March 2011, China's National Development and Reform Commission gave its final approved a previously announced US$9 bln refinery and petrochemical JV between Sinopec and Kuwait Petroleum (KP)'s subsidiary Petrochemicals Industries Company (PIC). The news follows environmental and technical approvals of the project by the Chinese government last year. The complex, planned at Donghai Island near Zhanjiang, China will include a 300,000 bpd refinery and a petrochemical complex based on a 1mln tpa ethylene plant and include downstream polyolefin and EG plants. Completion is expected in 2013. KP will supply the crude oil to the venture. Sinopec will hold 50% stake of the JV, PIC 30% and Dow Chemical confirmed as one of two additional overseas partners in the project. The remaining partner will replace Shell, which pulled out of the project in late 2009. Talks have been held with BP and Total as Shell's replacement. China's annual PE demand is expected to grow by 8-9% in 2011, but new capacity will reduce imports by up to 14% from the 7.4 mln tons imported in 2009, although this will be more at the expense of neighbouring Asian states while Middle Eastern suppliers will be unaffected. According to Chinese customs statistics, the country�s imports of plastics in primary forms declined 6.2% y-o-y in volume although they increased 8% y-o-y in value in the first seven months of the year, while exports of plastic products grew 5.9% in volume and 21.6% in value over the same period. The trend demonstrates both the slowdown of domestic demand coupled with increased self-sufficiency in plastics. Under the 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 the end of 2011. BMI believes that, on the basis of current projects, China will have ethylene capacity of 17.91 mln tpa by the end of 2011. Sinopec is strengthening its position as a leading chemicals producer with 2 mln tpa of ethylene capacity added to its operations in 2010, lifting capacity to 9.5 mln tpa. It forecasts ethylene capacity of 12-13.5 mln tpa by 2015 with three additional refinery and petrochemicals complex planned by 2015 and the upgrading of existing refinery and chemical operations while eliminating chemical operations with poor profitability. A further surge in capacity is expected in 2016 as a range of coal-to-olefins complexes come onstream.
The other Asian giant in the petrochemicals industry- India, shows no sign of slowing down, although it could come up against capacity constraints over the medium-term, according to BMI�s latest India Petrochemicals Report. Indian demand for most petrochemicals products was strong in FY 2010-11 with polymers up by 10% y-o-y. Within the polymer sector, demand for polypropylene (PP) increased by 18% due to strong growth in automobiles, packaging and industrial applications. Growth in construction and agriculture led to 6% growth in polyvinyl chloride (PVC) sales, while home furnishings and textiles helped boost demand for polyester by 13%. Strong growth in the bottled water and packaging sectors led to a 24% rise in polyethylene terephthalate (PET) consumption. In the year ahead, demand for polyethylene (PE) and PP is forecast to grow in double digits in 2011, with some grades, such as biaxially-oriented polypropylene (BOPP) film for packaging, non-woven PP and pipe grade PE expected to grow by more than 20%. In 2010, strong demand for low-density polyethylene (LDPE) and linear low-density polyethylene (LLDPE) film sucked in imports, while the country remains self-sufficient in high-density polyethylene (HDPE) over the short term due to plentiful capacity and relatively poor demand. The Indian petrochemicals industry has witnessed annual growth of around 14-15% over the 2005-2010 period and this double-digit growth is likely to be sustained over the medium term. India is on course to become the third largest consumer market for high-tech plastics after the US and China due to growth in the automotive industry, which is set to grow by more than 6% pa. In the short term, the main engine of the economy - domestic demand - will be fuelled by rising private consumption and fixed investment levels, as well as the need to rebuild inventories, which should drive petrochemicals demand. Reliance Industries Ltd (RIL) has projected that India will need capacity of at least one new world-scale cracker every year to satisfy demand for polymers, which is forecast to exceed 20 mln tons in 2020. While over the short-term there is a danger of over-capacity, there is a danger of shortages in intermediates such as styrenics, vinyl acetate monomer, acrylic acid and oxo-alcohols to supply the basic and speciality chemicals manufacturers.The automotive sector will be a major force in driving engineering and high performance plastics and synthetic rubber in India and is fuelling the diversification of downstream industries. Producers are seeking to increase the value of production and raise margins by tapping into growth in the automotive industry, particularly in styrene butadiene rubber (SBR) which India does not currently produce but is used in tyre production. A JV agreement between IOC, Taiwan�s TSRC Corporation and Marubeni plans to establish an SBR unit at Panipat with capacity for 120,000 tpa SBR due to come onstream by Q4-12. India imports up to 130,000 tpa of SBR with demand rising by 10% pa. Although the plan will use butadiene from the Panipat refinery, styrene will be imported. RIL is also focusing on synthetic rubber in its US$10-12 bln investment program and is already building several synthetic rubber manufacturing complexes. It has formed a joint venture with Russia�s Sibur to construct a 100,000 tpa butyl rubber complex at Jamnagar and it is also planning to build a 75,000 tpa styrene butadiene rubber facility at its Hazira site and a 40,000 tpa polybutadiene rubber plant at Vadodara. BMI estimates that Indian consumption of plastics will grow from 8 mln tons in 2009 to 16 mln tons by 2016 and 25 mln tonnes by 2020, with a lower rate of growth than the 15-16% seen in recent years. Nevertheless, this should prompt growth in the industry of 9-10% pa. Estimates for needed investment to cater for the increase in demand for plastics in 2010-16 have been put at US$10 bln. Even when bearing in mind the delays and cancellations, India will host a rapidly expanding petrochemical industry.