Will China absorb the bulk of Middle East petchem capacity?

09 April 2001 00:00  [Source: ICB]

Rick Coles of DeWitt, speaking at the recent World Petrochemical Review in Houston, posed the question 'who will suffer when the Middle East pushes into China?'China continues to play a pivotal role in the Asian petrochemical sector and in Middle Eastern producers' export strategies, due to its huge polymer import market. Chinese polymer imports continued to grow in 2000, matching the decade average growth of around 12%/year.

Whether this trend continues is vital in trying to answer the question, can China absorb new Middle Eastern production? China's increasing import market is good news for exporters. But this has to be seen in context of the country's own policies for its petrochemical industry, which is to increase self-sufficiency, says DeWitt.

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Coles maintains that even with conservative growth rates of 10%/year, which would need a slowing of the Chinese economy, there would still be a need for significant polymer imports into China. While with a growth rate of 12%, which is close to historical levels, China would need to import some 5-7m tonne/year of PE by 2005, up from the current level of 3m tonne/year, and 4-5m tonne/year of PP, rising from today's 1-1.5m tonne/year.

DeWitt's analysis shows that likely growth scenarios of 10-12%/year mean China could absorb some 60-70% of new Middle Eastern capacity. Although this would account for a large part of Middle Eastern export product, this could represent a major balance of payment issue for the Chinese government, as hard US dollars would have to be earned to purchase these imports.

Coles also addressed Chinese plans to expand olefins production. The most ambitious plan is to build six 600 000-800 000 tonne/year crackers as joint ventures with foreign oil companies and petrochemical majors.

DeWitt believes three of the six projects have advanced significantly, the Shell Nanhai project, the BASF Yangzi project and the BP Shanghai project. However, Coles says the labyrinthine approval process, the difficulties related to expatriating profits and the Chinese legal system have delayed all of these projects. Even the most advanced projects are not expected to reach fruition before 2005, at the earliest.

When it became clear that the foreign jvs were going to be seriously delayed, the Chinese government initiated a programme of debottlenecking and expansion at its existing crackers. This process will add 2.2m tonne/year of capacity by 2002. Despite these efforts, the need for substantial imports will remain.

However, because Middle Eastern capacity will expand rapidly in 2001-2 and Chinese import demand will not catch up until 2004-5, DeWitt believes the next two years will be very difficult for the ethylene industry.

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