The Strange Story of China Rate Cuts & Emissions

By John Richardson

A rumour emerged a few weeks ago that Sinopec would be required by the government to cut its operating rates in order to either or both help China achieve its 11th Five-Year Plan emissions targets and/or increase diesel production.

China is attempting to hit the targets under the plan before the next Five-Year Plan is announced in the spring and is well behind schedule, we have heard.

This is thought to be the result of the economic stimulus package that has greatly boosted industrial production and therefore put behind China behind.

The other theory behind the rumour was that the cutbacks were being planned in order to help China produce more diesel. Gas oil is used as feedstock for crackers in China and so we assume that this raw material would be diverted into fuel, thereby forcing rate cuts.

China is short of diesel because of the attempts to hit the emissions targets. This has caused electricity cuts resulting in factories, both big and small, to switch to their own diesel-powered generators.

Early last week or colleagues at CBI got confirmation that the production cuts would take place. As a result, they received confirmation from Sinopec that this would mean polyethylene (PE) production would fall by 100,000-150,000 tonnes in December and polypropylene (PP) by the same amount. This is equivalent to 10% operating rate cut,

 

man-scratching-his-head.jpgSource of picture: regainyourhair.co.uk

 

But fathoming China is never easy: A producer told us when we were in Shanghai last week that he had heard Sinopec had only made this statement to jack-up local prices. He added that there was no need to cut rates as rolling power cuts in China, indicating that the emissions targets had already been hit. The end of the cuts would also ease the diesel shortage.

(As we said yesterday, though, we think the polyolefins market will weaken rather than strengthen during December.)

Whatever the truth about the story, the fact remains that China’s push to hit its 11th Five-Year Plan emissions targets have been a significant factor in shaping polyolefin and other chemicals and polymer markets over the last few months. We will examine how the drive to reduce pollution has affected polyvinyl chloride (PVC) in a post later this week

Despite the comment from the producer, we have heard yet another story that China is still struggling to hit its emissions goals and so efforts to hit targets will continue until March next year. That is when the 12th Five-Year Plan is due to be formally approved and begin.

Confused? If you were being paranoid you could also believe that this was a conspiracy…..



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