China’s increase in chemicals self-sufficiency will hit US shale gas expansions

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China C2,C3 May17Some years ago, when China was well on the way to becoming the world’s largest importer of chemicals, a reporter asked the chairman of Sinochem, China’s largest chemical company if China intended to keep increasing its imports?  “Not at all” was Su Shulin’s reply, “This is temporary.  It is not our strategy.  We will become self-sufficient.

China’s current 13th Five Year Plan, covering 2016 – 2020, confirms his analysis.  Wherever possible, China is now moving to increase its self-sufficiency as the above chart confirms:

  In the ethylene chain, it intends to increase self-sufficiency from 49% in 2015 to 62% in 2020
  In the propylene chain, self-sufficiency will increase from 67% in 2015 to 93% in 2020
  Detailed investment plans are already being implemented to fulfill this strategy

China PTA May17Ethylene and propylene are following the pattern set in other major product areas.  In 2014, China was the world’s largest importer of PTA, the key raw material for polyester fibre and PET bottles, as the second chart confirms:

  It imported 1.7 million tonnes in January – March 2014.  But then a series of major new world-scale plants began to come online, and China has since become a net exporter
  NE Asian producers have lost 97% of their export volume to China and SE Asian producers have lost 90%
  NEA and SEA are also now starting to face competition from China in Middle Eastern import markets

China PX May17PTA is not alone in seeing this transition.  There has really only been one major exception, paraxylene (PX) – the raw material used to make PTA.  As the third chart shows, the new PTA plants have had to depend on PX imports for their feedstocks.  The reason is that PX became the target of public concerns over environmental pollution and safety, causing expansion plans to be put on hold for some years.

  China PX imports have risen by a third over the past 3 years to 2.7 million tonnes in Q1 this year
  NE Asia has been the main supplier, with S Korea, Japan and Taiwan all moving major volumes
  This, of course, has helped to compensate for the loss of their PTA exports

But now the logjam on new PX plants in China has been broken, and capacity is set to double from 13.6 MT to 29.7MT over the next 3 years.  This expansion will not only support new downstream capacity in PTA, but will likely also lead to modest exports of PX as well.

This is further evidence, if more was needed, that the 4.5 million tonnes of new US polyethylene capacity will likely have major problems in finding a market, as it comes online later this year.  As I noted back in March, the scope for disappointment with these projects is very high.  US polyethylene exports had already fallen 50% since their 2009 peak – even before China began to increase its self-sufficiency

 

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