12 April 2009 22:00 [Source: ICIS news]
By Becky Zhang
SHANGHAI (ICIS news)--The old Chinese proverb, “men struggle upwards while water flows downwards” seems to apply perfectly to the flood of petrochemical imports that China has experienced since December 2008.
The local methanol and PVC industries are the most vulnerable, because they have seen their cost competitiveness decline as they have ramped up capacity. On paper, ?xml:namespace>
“Protectionist sentiment has, nevertheless, spread to the PE sector with unverified rumours that an anti-dumping claim might be lodged. But there seems to be little possibility of a successful action because of this heavy reliance on imports,” said CBI polyolefin consultant Tao Hong.
Unit: '000 tonnes
Polyvinyl Chloride (PVC)
2007 monthly average
2008 monthly average (excl Dec 08)
Data source: China Customs
But an application for an anti-dumping investigation into methanol was submitted by producers and the China Methanol Association to the Ministry of Commerce (MOC) early this year.
“The results of the investigation are expected in May. This is going to be a complex and time-consuming process because of many uncertainties, such as the level of historic prices and the potential for trade friction,” said CBI methanol analyst Ken Yin.
A reinvestigation into PVC imports from
The new investigation will last until 29 September 2009, during which time the original duties – ranging from 6% to 84% - will stay in place.
Petrochemical imports began to rise when the global financial crisis led to a slump in chemicals demand and high inventory pressures.
Overseas pricing fell faster than in
The result was that domestic pricing slumped below the break-even point of the local methanol and PVC players as importers scrambled to make money while they could.
The surge in methanol imports was also driven by speculation on booming electronic futures markets, according to CBI analysis.
China Liquid Chemical Transaction, Galaxy Merchandise Exchange and Zhangjiagang Chemical Electronic Exchange are the three major e-trading platforms, all located in eastern
“Half of spot trades flowed into e-markets. As a result, inventories of methanol at the ports reached an all-time high of 480,000 tonnes at end-March, which doesn’t include tanks in bonded zones and long-term contracts with end-users,” said Yin.
In 2005-2008, port inventories peaked at 300,000 tonnes with a low of 50,000 tonnes.
This led to capacity utilisation falling to an average of just 30% in March, a CBI survey discovered.
Middle East production costs are well below $100/tonne, with other overseas players able to achieve a 10% return on investment provided prices are above $150/tonne, according to CBIestimates, with domestic costs far higher.
Data Source: CBI Research & Consulting
The price gap between local and international material widened to as much as CNY350/tonne in early December before narrowing to less than CNY100/tonne in late March, said CBI.
It’s a similar story for PVC, where calcium carbide-based producers – which account for 82% of
The shift in competitiveness is the result of ethylene-based production becoming far more competitive than the calcium carbide or coal-based route due to the fall in oil prices, said CBI.
Since August 2008, the operating rates of domestic calcium carbide-based PVC plants have been at 30-50%.
“We do not see any signs of PVC imports declining in the coming months,” said CBI analyst Lynn Du.
“The anti-dumping duties have lost their effect because overseas competitors’ production costs are still below the Chinese producers, even after the duties have been added.
“PVC imports could reach 2m tonnes this year – representing 22% of 2008 demand and 2.3 times higher than last year’s shipments from overseas.”
This has resulted in reduced naphtha supply and therefore cracker operating rates, leading to a rise in imports that were essential to keep the market adequately supplied.
PE imports appear to have peaked at the end of February as Middle East and
However, ICIS news has reported on the increase in cargoes from the
Unconventional shipments from
Still, though, the Chinese economy might have bottomed out thanks to increasing credit and the huge government stimulus package.
Crucially, there are signs of the real economy picking up in response to easier lending and government spending. For example, the country’s Purchasing Managers’ Index rose to 52.4 in March from 49.0 in February.
But high inventory levels in some product chains – partly resulting from speculation – could represent a threat to sustained higher pricing.
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