AFPM ’18: China chemical capacity cuts from anti-pollution drive to moderate – Moody’s

HOUSTON (ICIS)–Chemical capacity reductions from China’s ongoing crackdown on air pollution are likely to moderate, an analyst at Moody’s Investors Service said on Friday.

“Going forward, there will be some moderation in capacity reductions – in chemicals as well as coal. There will be a move towards balancing supply and demand in China,” said Jiming Zou, senior analyst at Moody’s.

Zou spoke to ICIS in an interview heading into this year’s International Petrochemical Conference (IPC).

Reductions in soda ash, fertilizers, ammonia and coal capacities have likely reached a levelling off point, he noted.

“Constraining production has had unintended consequences on inflation,” said Zou.

China is in the process of moving production capacity from urban areas to industrial parks. This involves rebuilding them with more modern and efficient technologies, he said.

“In the move to chemical parks, they will use new technologies and have more value-added products. Companies with the financial means and relationships with government will benefit,” said Zou.

This will be a major shift away from the massive build-up in undifferentiated chemical and other commodity capacities in China after the financial crisis in 2007-2008 as the government pumped $4,000bn into investment programmes.

“These were all in the same categories of products without differentiation and without any premium value to customers,” said Zou.

Now this is changing, with an emphasis on efficient processes and value-added products.

“There will be fewer but larger companies. In the transition years, capacity will go down, but post-2020, companies will seek to grow again,” said John Rogers, senior vice president and head of North American chemicals at Moody’s.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 25-27 March in San Antonio, Texas.

Interview article by Joseph Chang