By John Richardson
HERE are five more predictions for China’s petrochemicals markets during 2015:
1.) Polyethylene, polypropylene (PP), phenol, purified terephthalic acid (PTA) and polyvinyl chloride (PVC) will be just some of the products that will see declines in imports on rising self-sufficiency and a further slowdown in the local economy. As an example, the above chart shows our estimates for the 2012-2020 increases in local PP production.
2.) Meanwhile, China will increase its exports of PTA. China has built lots of state-of-the-art plants that without the 2008-2013 explosion might not have been built. But you can make a strategy out of a mistake. These plants will be run at operating rates higher than market conditions appear to merit in order to maintain local employment. And here is another thought: As lower value apparel and non-apparel manufacturers continue to move out of China because of rising labour costs, might China start building more and more polyester-chain investments in less-developed economies? For example, it could decide to supply PTA to polyester fibre plants in Vietnam, or even in years to come in Myanmar. These polyester fibre plants would then supply end-users who would make clothing, sheets and pillowcases etc. that would be shipped back to China and to international retailers. Trade flows in other petrochemicals could be similarly affected.
3.) China will also increase its exports of polyvinyl chloride (PVC). It has again built a strategy around a mistake. Too many PVC plants were built because of easy credit – and because of the connected boom in the real-estate sector. But wholesale closure of these plants is simply not an option because of the need to preserve jobs – particularly in less-developed regions of China where many of these plants are located. Once again, trade flows of other petrochemicals could be similarly affected.
4.) This will be another year when credit availability will drive all of China’s petrochemicals markets. Growth in overall lending will once again be reduced. Controlling the growth and the direction of credit is not just about tackling China’s bad debt problem, but are also essential elements of economic reform. So expect the further, deliberate closure of lower-value petrochemicals end-users as China tries to move further up the manufacturing value chains. You should therefore carry out more audits of your customers to find out what which ones are likely to go bust and which ones will prosper.
5.) But as China pushes further up the manufacturing value chains, the main opportunity will not involve the luxury end of consumer goods markets. As credit growth further contracts and as the anti-corruption campaign continues, cheap higher value goods, such as locally-made smartphones, will be where the biggest opportunity lies. What does the final point mean for the petrochemicals business? Watch this space….