Too Late For Iron Ore, But Not For Petrochemicals

By John Richardson

YOU might be familiar with the phrase “putting all your eggs in one basket”. It is the kind of phrase that you learn at your mother’s knee, and yet CEOS seem to have forgotten what they were surely taught from a very early age.

The chart below should take your breath away.

Chinasteel

It shows that:

  • Between 2000-2007 no less than 297.8m tonnes of 480.3m tonnes of world steel demand was generated by China.
  • And then the market became even more unbalanced between 2007 and 2014. Of 320.2m tonnes of global steel demand, no less than 314.8m tonnes was the result of China’s unsustainable credit boom.
  • It also worth noting that developed market demand declined by 85.5m tonnes during 2007-2014, with all the other emerging markets put together accounting for only 90.9m tonnes of steel demand.

The story is the same in petrochemicals, of course. A search through our ATEC database will show you how China’s demand for every chemicals and polymer has grown far more rapidly than any other country or region over the last 14 years.

Last year, in the case of polypropylene, as the slide below illustrates, this left China with nearly 18m tonnes of polypropylene consumption. Its nearest rival was India at only around 3m tonnes of consumption.

PPChina2

A question I asked three years ago was, “what is your Plan B if Chinese growth moderates?”

The trouble is that in 2015 and beyond, Chinese growth is not just in danger of moderating. It could instead quite easily fall of a cliff.

Small and medium-sized iron companies in Australia, which have added capacity on the assumption that China’s steel demand would continue growing at rates seen in 2000-2014, will go bust.

The excellent news for the petrochemicals industry is that it is not too late to avert disaster. By the end of Q1 next year, therefore, I think we will see the much-needed postponement of many projects that are being planned on the false assumption that they will able to export big volumes to China.

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