China Petrochemicals Report Q4 2009

China Petrochemicals Report Q4 2009

Bolstered by modest signs of domestic demand revival spurred on by a massive government stimulus
programme, the Chinese petrochemicals industry is likely to witness the beginning of a recovery in output
in H209, according to BMI’s latest China Petrochemicals Report.
In H109, ethylene output was down 6.8% year-on-year (y-o-y) to 4.8mn tonnes, while plastic in primary
forms was down 0.1% to 16.5mn tonnes and the manufacturing of plastic products was up 4.9% to
20.2mn tonnes. While the results were poor by historical standards, Q209 saw some signs of recovery as a
result of the government’s economic stimulus effort. In June, the fall in ethylene output had moderated to
2.8% and plastics output was up 3.2%. Inventories had largely been cleared along the supply chain and
demand was showing signs of revival with BMI anticipating an increase in H209. Petrochemicals
producers in China should also post an improvement in turnover and margins due to cheaper feedstock.
Yet while on a monthly basis the performance of the petrochemicals industry should improve, on an
annual basis it will still be disappointing, reflecting the impact of the global economic crisis from
September 2008.
Integrated petrochemicals producers are breathing a sigh of relief at lower oil prices, having had to absorb
the acceleration in crude prices to up to US$150 per barrel (bbl) in 2008 under government restrictions on
fuel prices. However, BMI cautions that investment in new refineries and petrochemicals plants, boosted
by the stimulus programme and increased bank lending, risks over-capacity and lower product prices over
the short-term. Much will depend on the strength of the recovery in the automotive and home appliance
sectors, which are expected to recover before the construction sector.
The government stimulus plan includes CNY100bn for investments in upgrading fuel quality and
CNY400bn for 20 new large-scale petrochemicals projects, including the cracker projects in Dushanzi,
Fujian, Tianjin, Zhenhai, Fushun, and Daqing, with a combined capacity of 5.2mn tonnes per annum
(tpa). The first of these to come onstream is Sinopec’s 800,000tpa Fujian cracker, which is due to be
commissioned by end-2009. A Sinopec-Sabic JV is due to come onstream in H209 with total
petrochemical production capacity of about 3.2mn tpa including 1.2mn tpa of ethylene. The government’s
stimulus plan for the textile industry, which involves raising the export tax rebate rate from 14% to 15%,
could also help revive polyesters.
BMI cautions that while the global economy is in a phase of slowdown, Chinese expansions over the next
two years could create a surplus of supply, if not in China then in the international market. We forecast a
1.15mn tpa increase in PE capacity and a 2.02mn tpa increase in PP in 2009. With BMI anticipating
domestic demand growth of 1-2%, polymer market self-sufficiency should reach 70% PE and near 100%
PP in 2009. This could drive down international polymer prices yet further, putting more pressure on
Chinese petrochemicals producers’ profit margins despite the easing of naphtha feedstock prices. In this
climate, we doubt that Sinopec or PetroChina will report a net profit in 2009 and there is also the
possibility of further losses in H110. Some segments, such as benzene, are already in surplus due to
recent increases in capacity and 2-3mn tpa of additional benzene capacity is due to come online during
2009. Benzene producers are likely to witness temporary closures and low rates of capacity utilisation,
particularly given the poor projections in the styrenics industry.
The Chinese polymer resins market is set to expand by an average of around 6.5-7.0% in 2009-14.
However, with domestic demand likely to continue to outstrip supply, China will remain a net polymers
importer over the medium-term and the largest importer in the world. In 2009, China depended on
imports for at least a third of polymer demand. Most of the increase in demand will be covered by both
Chinese and Middle Eastern supply from new petrochemicals plants due to come onstream in coming
years. By 2014, China could represent 35% of the global PP market and 20% of global PE demand.

Executive Summary ....6
SWOT Analysis.8
China Petrochemicals Industry SWOT........ 8
China Political SWOT .......... 9
China Economic SWOT ...... 10
China Business Environment SWOT......... 10
Global Market Overview.......11
Global Ethylene Capacities 11
Table: World Ethylene Production By Country, 2008 And 2013 (‘000 tonnes capacity) ........ 11
Polypropylene.......... 14
Global Oil Products Market Review......... 17
Table Global Oil Prices, 2003-2013 (US$ per barrel).... 21
Emerging Asia Petrochemicals Overview 22
Table: Asian Ethylene Projects...... 24
China Market Overview........25
Table: China Petrochemicals Sector – HDPE Capacity . 26
Table: China Petrochemicals Sector – LDPE Capacity. 26
Table: China Petrochemicals Sector – LLDPE Capacity 27
Table: China Petrochemicals Sector – PP Capacity....... 27
Table: China Petrochemicals Sector – Cracker Capacity.......... 29
Table: China Petrochemicals Sector – PVC Capacity .... 30
Table: China Petrochemicals Sector PS Capacity .......... 33
Energy Inefficiencies And Bottlenecks ...... 33
Production .... 34
Table: China’s Cracker Capacity, 2006-2013 (‘000tpa) 35
China Petrochemicals Business Environment ...37
Table: Asia Pacific Petrochemicals Business Environment Ratings ...... 37
Limits Of Potential Returns. 37
Risks To Realisation Of Potential Returns 38
China’s Foreign Investment Policy 39
Industry Trends And Developments .........42
Table: China Petrochemicals Sector – Ethylene Projects.......... 42
Table: China Petrochemicals Sector – PE Projects........ 43
Table: China Petrochemicals Sector – PP Projects........ 44
Table: China Petrochemicals Sector PS Projects 44
Upstream ...... 45
Olefins .......... 46
Intermediates 47
Integrated Projects .. 49
Possible Foreign Joint Ventures .... 54
Other Projects.......... 55
Regulatory Developments ... 56
Financial Results ..... 58
Petrochemicals Prices ........ 59
Mergers And Acquisitions... 60
Industry Forecast Scenario ..61
Table: China’s Supply And Demand Volumes Of Petrochemical Products....... 61
Table: Chinese Petrochemicals Sector, 2007-2013......... 64
Macroeconomic Outlook..... 65
Table: China – Economic Activity, 2006-2013 .... 67
Company Monitor......68
China Petroleum & Chemical Corporation (Sinopec) .... 68
Country Snapshot: China Demographic Data.....72
Section 1: Population.......... 72
Table: Demographic Indicators, 2005-2030........ 72
Table: Rural/Urban Breakdown, 2005-2030 ....... 73
Section 2: Education And Healthcare....... 73
Table: Education, 2002-2005 ........ 73
Table: Vital Statistics, 2005-2030.. 73
Section 3: Labour Market And Spending Power .. 74
Table: Employment Indicators, 2001-2006.......... 74
Table: Consumer Expenditure, 2000-2012 (US$) 74
Table: Average Annual Manufacturing Wages, 2005-2012 ....... 75
BMI Methodology ......76
How We Generate Our Industry Forecasts .......... 76
Chemicals And Petrochemicals Industry .. 76
Cross Checks 77
Business Environment Ratings....... 78
Table: Petrochemicals Business Environment Indicators And Rationale.......... 78
Weighting...... 79
Table: Weighting Of Indicators ..... 79