By John Richardson
SOME petrochemicals companies believe that their big cracker and derivatives projects will produce positive returns in a few years, when, in fact, it could take much longer, say several industry sources.
The sources feel that the growth story in emerging markets is becoming ever-more complex, involving ever-more degrees of ambiguity. Headline arguments about, for example, “the rise of the Asian middle classes” or “China’s drive towards more sustainable levels of growth” therefore need to be more rigorously challenged by investors, they argue.
We agree. Here is why:
- Down gauging, as a result of improvements in polymer technology, mean that less plastic can produce the same, or better, effects than the greater volumes of plastics that we were used before. Hence, whilst what represents “worldscale” gets bigger and bigger in cracker projects, there is a parallel drive to reduce the rate at which consumption grows for environmental reasons, This is especially so in developed countries and in the wealthier regions of emerging markets, such as the coastal provinces of China.
- In emerging markets, the biggest ambiguity surrounds how quickly China can move from one form of growth – over- investment – towards something much more sustainable. One lost source of growth might take many years to be entirely replaced by another source, or sources, of growth.
- And in the emerging world in general, affordability is the key. How do you, for instance, produce plastics cheap enough to go into single-serve sachets sold in India for as little as one rupee a time? How do you this at a time when project costs are soaring because many companies are building at the same time, especially in the US, largely on the assumption that growth in China will inevitably absorb all of the volumes in a very short space of time?
- The essential points are these: Despite all the talk about the rise of higher-value, speciality grades of polymers, the biggest opportunity in emerging markets will remain “cheap is best” for many more years than some people assume. In developed markets, also, cost will be king because of demographics.
We would love to hear your views.