13 January 2009 12:13 [Source: ICIS news]
By Elsa Yan
SHANGHAI (ICIS news)--?xml:namespace>
Eventually, the two state-owned petrochemical majors – PetroChina and Sinopec – aim to add 8.45m tonne/year of C2 capacity to an existing capability to produce 9.62m tonne/year. But negative demand growth for polyethylene (PE) and polypropylene (PP) in the first 11 months of 2008 - resulting mainly from the collapse of exports of finished goods to the West - has forced a major rethink on timings.
Long-term optimism over growth remains high as a result of government efforts to reduce export dependence and boost domestic consumption.
But there is less confidence on how this demand will be met because the rise in coal prices and the falls in crude have raised doubts over coal-based olefins investments.
More immediately, the task
In December last year, PetroChina delayed the start-up of two cracker projects – at Panjin, in northeast China’s Liaoning province, and at Dushanzi, in the north-western Xinjiang autonomous region – representing 1.45m tonne/year in capacity, from 2008 to H1 2009. Later the same month, Sinopec said that it would slow construction of several on-going projects and suspend those where ground had not been broken.
The 1m tonne/year cracker at Zhenhai in the eastern
The 1m tonne/year cracker at
Other crackers slated to come on stream in 2010-2011 include
“It is likely that these projects may be postponed to 2013,” according to Li Xihong, president of Sinopec’s Economic & Development Research Institute.
The confirmed delays mean that
But he has talked of the inevitability of the government achieving its objective of transforming the economy over the coming years from being export to consumption-driven.
Flagging downstream demand resulted in local olefin derivatives prices falling by as much as two-thirds during 2008.
Various grades of PE and PP tumbled by 50% or more from record highs in June. The worst-affected grade of PE was low-density (LDPE), the price of which had fallen by nearly 60% as of end-November, said CBI. PP yarn grade had fallen by 61%.
Apparent PE demand fell by 1.28% in January-November to 10.28m tonnes compared with the same period in 2007, CBI added. PP consumption contracted by 1.3% to 9.57m tonnes over the same period.
Still, confidence remains over
The government increased export tax rebates for partial textile and garment and plastic woven and non-woven products from 11% to 13% last August. These were further increased to 14% in October.
And then in November, a Yuan (CNY) 4,000bn ($584.7bn) economic stimulus package was announced. CNY 100bn had already been spent by the year end.
Local plastic pipe manufacturers are expected to be major beneficiaries of spending on construction and on projects across many sectors where the emphasis is on low-energy consumption.
The stimulus package and delays to projects are likely to tighten PE supply over the medium-term, said Li Jie, an analyst with CBI. She added that the local market is already 30% dependent on imports.
The big unanswered question - once the dust from the global economic crisis has settled - is how many further projects
The cost advantages of coal-to-chemicals have been undermined by the sharp rise in coal prices since 2006 and the falls in crude.
Only one coal-to-olefins plant is on stream – the 600,000 tonne/year Shenhua (
($1 = CNY6.84)
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