China’s Polyolefins Supply Surge: The Bigger Picture

Business, China, Company Strategy, Economics, Naphtha & other feedstocks, Oil & Gas, Polyolefins

Chinapolyolefinsstartups2014

By John Richardson

ON paper, the polyolefins supply surge in China during 2014 is huge as it involves:

  • Some 2.2m tonnes/year of new  polyethylene (PE) capacity, according to this ICIS news article.
  • No less than 4.1m tonnes/year of new polypropylene (PP) capacity. To put this into context, China’s total effective capacity was estimated by ICIS Consulting at 14.5m tonnes in 2013. This represents a theoretical increase of nameplate capacity totalling 28.3%.

But we all know that extra capacity isn’t going to hit the market in anything like these on-paper numbers during 2014.

Plants are, obviously, being commissioned at different points of time during the year.

And the volume of start-ups is so great that a substantial number of technical problems in getting these facilities fully operational seem inevitable.

Many of these plants are also remote from the big consumption markets, as they are coal-based and therefore located in western China in order to  be close to their feedstock supply. Logistics costs and delays might, thus, further reduce the amount of volumes from the start-ups that will hit markets this year.

There are anecdotal, but unconfirmed, reports of a shortage of process engineers to run chemicals and plastic processing plants. This is said to be the result of very tight overall blue collar labour markets.

Lack of experience in running plants might be another factor. Some of these facilities, as they are coal-based, are being operated by new entrants to the polyolefins business.

This is all important for short term analysis, of course, but there is a bigger picture here.

The bigger picture is this:

  • Strategically, China wants to run its new polyolefins capacity hard in order to boost economic growth in western China. Running petrochemicals plants hard in general will also be about generating export dollars as domestic growth continues to slow down. Cost curves will thus be of secondary importance.
  • And so expect any initial delivery and production problems to be fairly quickly ironed out.
  • Plants will then run hard even if the oil price falls below the $85 barrel or  thereabouts, which is seen as the break-even point for coal-based producers.

What is equally worrying is that people are still building vast amounts of new polyolefins capacity elsewhere, most notably in the US, as they think that advantaged supply will inevitably make profits, and that demand will always grow.

They assume that demand will always grow because they think that global economic problems are cyclical rather than secular. This assumption is wrong.

PREVIOUS POST

China: Starting All Over Again

30/09/2014

By John Richardson WE NOW know is that China’s real GDP growth is probably he...

Learn more
NEXT POST

China Coal-To-Olefins "A Net Water Producer"

02/10/2014

By John Richardson IT has become the accepted wisdom over the last few years tha...

Learn more
More posts
Polyethylene producers must avoid repeating the mistakes of Q1
05/06/2020

By John Richardson AFTER a very challenging first quarter, nobody wants to make further write-downs ...

Read
China’s PP production growth could lead to big declines in 2020 imports
01/06/2020

By John Richardson PLEASE DON’T say I didn’t warn you. China is rapidly moving towards polypropy...

Read
Coronavirus, impact on the developing world and the scale of demand losses
29/05/2020

By John Richardson ALL OF us are struggling to come to terms with a collapse in the global economy t...

Read
Coronavirus, reshoring and the polyester industry: Good luck with that
27/05/2020

By John Richardson POLITICIANS, not just including the Populist variety, are talking a lot about res...

Read
Beware of the fragile nature of the oil and petrochemical price recovery
22/05/2020

By John Richardson RECENT rises in oil and petrochemicals prices should not in my view be taken as a...

Read
China petrochemical inventories build on what could be false hopes of a V-shaped rebound
19/05/2020

By John Richardson AS PETROCHEMICALS storage space in China fills up on the hope that the country ca...

Read
Further polyethylene rate cuts seem inevitable with no certainty on who will blink first
18/05/2020

By John Richardson IT IS NOT just a razor-like focus on petrochemicals demand that will get you thro...

Read
What petrochemical companies must do to adapt to a smaller coronavirus economy
15/05/2020

By John Richardson PETROCHEMICAL companies can adapt to the coronavirus New Normal by running their ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more