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China Will Do What Suits China

Business, China, Company Strategy, Economics, Environment, Olefins, Polyolefins, Technology, US
By John Richardson on 23-May-2013

PDH.jpgBy John Richardson

CHINA might well be in the midst of deflation caused by overcapacity in some chemicals, and in many other industries as well, but the longer-term strategic direction of reducing dependence on imports doesn’t appear to have changed.

An indication of this was this story from my colleague Lilian Hua at ICIS. She writes that eight propane dehydrogenation (PDH) facilities with a total propylene production capacity of 5.36m tonnes/year are being built across the country (see the above table).

Assuming all the projects start-up as scheduled, China’s propylene output will be able to cover 75% of its domestic requirement, industry sources said.

Nine further PDH projects, which will be able to produce 4.74m tonnes of propylene, are also reportedly being planned.

Staggering – and, of course, this doesn’t take into account the effect on import volumes of propylene derivatives, most importantly, polypropylene (PP). The blog will investigate what this could mean for PP and will report back in a later post.

It is potentially a similar story for butadiene, which we will also cover in a later post.

Projects on paper, however, often don’t materialise, as everyone knows.

Supporters of overseas investments , which have been partly justified on continued big deficits in China, will also argue that even if most of the PDH plants are built, they might not run. People will no doubt ask: How will the economics of importing propane into China compare with local propane supplies into the many PDH facilities being planned in the US?

But we only have to look at the great uncertainty surrounding coal-to-olefins projects to realise that making complacent assumptions is extremely risky.

Many coal-to-olefins projects don’t make environmental or economic sense in the Western context. That was the consensus view of delegates attending the ICIS Olefins Conference in Amsterdam in February.

However, on our recent trip to Shanghai we heard another view. It was that:

*The environment doesn’t matter as much in Western China, where most of the coal-to-olefins projects are located. This is provided, of course, that enough water can be found for these water-intensive investments. Thus, even though China’s new leaders are paying more heed to environmental concerns, the priority out West may remain economic development.

*Beijing stipulates that 50% of the coal output of the Western provinces has to be converted into value-added derivatives before it can be sold elsewhere in China. Thus, making the coal into ultimately polyethylene (PE) and PP fulfils this criterion.

China will continue to do what suits China, and not what suits overseas petrochemicals companies.