Home Blogs Chemicals and the Economy China’s olefin imports surge as government subsidises gasoline/diesel demand

China’s olefin imports surge as government subsidises gasoline/diesel demand

Economic growth, Oil markets
By Paul Hodges on 27-Jan-2008

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China’s ethylene and propylene imports have surged in recent months, as the country has diverted naphtha to supply gasoline and diesel needs.

ICIS news, reporting official China Customs figures, says 2007 ethylene imports were over 400% higher at 510KT, versus just 117KT in 2006. Ethylene exports also more than halved to 50KT in 2007, from 129KT in 2006.

Altogether, China’s net ethylene balance was therefore 472KT worse than in 2006. Propylene shows the same picture, with imports more than doubling in 2007 to 728KT versus 321KT in 2006.

Strong growth ahead of the Olympics is obviously part of the explanation. As is the fact that most of the country’s major new crackers won’t come online until 2009/10. But another key factor is the government’s need to prioritise gasoline and diesel production to ensure social stability.

As ICIS news reported last year ‘China has asked Sinopec and PetroChina to beef up their gasoline and diesel output to help relieve the country’s oil shortage since October’. And they quoted refinery sources as adding that ‘Diesel is tight in China. Reduced production of one tonne of ethylene would mean adding five tonnes of diesel.’

China’s dilemma highlights a wider problem for petchems. Crude supplies look to remain tight. This is driving up naphtha prices. But gasoline and diesel demand is continuing to grow strongly in many emerging countries, as governments such as China’s instead subsidise domestic consumers.

Demand for transport fuels is therefore likely to stay relatively strong, as the world adjusts to a tighter oil supply/demand balance. Those petchem producers without access to advantaged feedstock may well face a difficult few years.