What now for China? The Chemical Industry and Specialised Products

Whether it is the culture, history, political or economic policies; China is seldom not in peoples’ thoughts. The world’s second biggest oil consumer has continued its rise, at an almost unstoppable pace, to global prominence over the last ten years with many balking at the sheer size that its economy has grown. However, recent GDP figures for the second quarter have left many to question whether this growth is sustainable. Specifically, growth figures for the second quarter were 7.5%, down from 7.7% in the first quarter. Indeed, total GDP growth for 2012 was 7.8% from the 10.4% recorded in 2010 and the 14.2% recorded before the global crash in 2007.

There are two schools of thought here:  one says that China will return to the glory days of 2010; whilst others believe that the economy has overreached itself and will recover at a much slower pace than predicted.

In terms of Specialised Products and China, either scenario is beneficial from both a charterer’s or owner’s perspective. It has been well documented that China will continue to rely on imports throughout the coming decade and will form a major part of the supply-demand balance. According to industry sources, for petrochemicals alone this demand is projected to increase 6-7% per annum by 2020. Speciailty chemical demand is expected to increase further, by 8-9% per annum.

For owners operating in Specialised Products’ markets, these figures will make happy reading and indeed may induce a refreshed attitude on the feasibility of relying on Chinese import demand. For charterers looking to supply this demand, particularly those exploiting US shale gas, this will also ring true from a sales perspective.

However, the cynical view once again comes to the fore here: Will China become self-sufficient in chemical production?

Investment from international chemical majors in China is no secret. Whether it be a joint venture with a national company or sole project, investment has continued almost unabated for the last decade. But there is a problem here. The fast demand growth of the past decade has led to overcapacity in sectors such as methanol and PVC, which has in turn decreased profitability. The key factor is now where the greatest returns can be realised. (The answer, many believe, is in specialty chemical production and other targeted areas of the industry that have yet to be exploited.) China certainly sits on enough natural resources to theoretically supply these projects and with correct regulation and management may enable it to become self-sufficient and could even lead to it becoming a bigger exporter in the future. It is clear that China’s reliance on imports will help fuel the specialised products market for some time to come but looking further ahead, could this be turned on its head and challenge trade flows and the status quo? A difficult question and one that will not be answered until the end of the decade at the earliest!
SP blog 13 aug

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