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A drowning man will clutch onto anything

Business, China, Company Strategy, Economics, Environment, India, Indonesia, Innnovation, Markets, Middle East, Olefins, Philippines, Polyolefins, Projects, Sustainability
By John Richardson on 12-Sep-2008

A drowning man will grab hold of any floating debris – even a plastic bag made from standard-grade Chinese polyethylene (PE).

Hence, last Friday a statement by Wang Tianpu led to a few days of excited speculation about the cancellation of several Chinese cracker projects.

The president of Sinopec Corp, the Hong Kong-listed arm of the Chinese refining and petrochemical giant, was quoted in press reports as saying that projects that had already been postponed would be suspended indefinitely (taken as a face-saving euphemism for cancellations). He also reportedly said that the pace of other projects would be adjusted.

“Fantastic. At last we are seeing some commonsense,” said a Singapore-based executive with a Western polylefins producer.

Sadly, though, only a few days later, Tianpu amplified his statement by saying that 2008 petrochemical expenditure would be cut by only $675m – amounting to much less than the cost of one cracker.

The excitement that greeted his first statement was the result of concerns over just how bad conditions could become over the next few years.

The hope was that a much bigger budget cut might take place – affecting the timing, or even the continued existence, of projects slated for commissioning in 2009 and beyond.

ICIS Plants & Projects estimates that 21 per cent of global ethylene capacity additions in 2008-12 will be accounted for by China.

The Middle East will be responsible for a further 36%, resulting in worldwide C2 capacity increasing to 156.3m tonne/year from 135.5m tonne/year.

China has every strategic reason to push ahead with more petrochemical capacity, even if growth looks precarious on the back of the likely frequent boom-and-bust cycles created by tight crude markets.

And we all know about the Middle East advantage, even if it might be eroding a little on tighter feedstock supply and higher capital costs.

“The knowledge society will strike back – eventually. Energy efficiency and renewable energy will be rewarding projects,” says Norbert Walker, Chief Economist at Deutsche Bank in his Asia Trip Report 2008.

So if you are not in the Middle East and not in China, are not moving up the innovation curve or don’t have good refinery-petrochemical integration (ideally, you will have a combination of all the above) you are in big trouble.

You’re only option is to sell your business to some gullible fool during the next up cycle -but you’ll have to be quick as the recovery is unlikely to last for long!