Abstract
A massive government stimulus package for the Chinese petrochemical industry
should help support
producers’ capacity expansions over the coming,
turbulent year, but BMI’s latest China Petrochemicals
Report
cautions that excess capacity is a threat to profitability, particularly in
the polypropylene, benzene
and polysters segments.
Chinese
petrochemicals producers reported a fall in profits in 2008, due to a
significant decrease in
chemical product prices at a time of rising raw
material costs and a decrease in sales volumes in Q408.
These negative
factors have come as the result of a 50% drop in domestic market demand,
caused by the
global financial crisis. In the olefins segment, production
growth stagnated, with ethylene down 2% and
propylene up 1%, leading to
total olefins production of 19.61mn tonnes, representing the country’s
first
ever recorded decline in olefins production. This reflected patterns
in production and consumption of
polyolefins, with polyethylene output
down 3% in response to a 2% drop in demand while polypropylene
output rose
2% and demand fell 2%. Exposure to external markets will determine segment
performance.
The most exposed is the polyester industry. PTA was hardest
hit, with demand down 11% to 15mn
tonnes, leading to an 8% drop in output
to 9.1mn tonnes. As textile producers faced bankruptcy, PTA
prices halved
in Q408 to the lowest level in six years. PE and PP were also affected by the
first recorded
declines. These mediocre results are all the more
incredible in a market that has seen double-digit growth
rates in recent
years.
Going into 2009, China is facing the prospect of negative growth in
the petrochemicals sector, as global
demand for Chinese plastic goods
collapses. Only a CNY500bn (US$73bn) government stimulus package
has
helped prevent Sinopec and PetroChina from delaying their planned cracker
expansions over the
next three years. The stimulus plan includes CNY100bn
for investments in upgrading fuel quality and
CNY400bn for 20 new
large-scale petrochemical projects, including the cracker projects in
Dushanzi,
Fujian, Tianjin, Zhenhai, Fushun, and Daqing, with a combined
capacity of 5.2mn tpa. The first of these
to come onstream is
Sinopec’s 800,000tpa Fujian cracker, which is due to be commissioned in
Q209. 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 economic is in
a phase of slowdown, Chinese expansions over the
next two years could
create a situation over over-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. This could drive down international polymer prices yet further, putting
more pressure on
Chinese petrochemicals producers’ profit margins
even given the easing of naphtha feedstock prices. In
this climate, we
doubt that Sinopec or PetroChina will report a net profit in 2009 with the
possibility of
further losses in H110. Some segments, such as benzene, are
already in surplus due to recent increases in
capacity and with 2-3mn tpa
of benzene capacity due to come online in 2009. Benzene producers are
likely to witness temporary closures and low rates of capacity utilisation,
particularly given the poor
projections in the styrenics industry.
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