The massive government stimulus in 2009 created unsustainable inflationary pressures and unrealistic expectations, and with lending slashed the Chinese petrochemicals industry will remain weighed down by an inventory overhang throughout H210 and going into 2011, according to BMI's latest China Petrochemicals Report. PE and PP production surged in the period of January-June 2010 in China, with apparent demand growth (domestic production plus imports) for polyolefins was 20%, while actual demand growth (minus stock building) was just 10%. Domestic production was up by 30% with total polyolefin imports rising by only 1%. In H110, leading Chinese petrochemicals producer Sinopec's ethylene output rose 41% year-on-year (y-o-y), to 4.2mn tonnes, plastics were up 30% to 6.09mn tonnes and fibres and synthetic rubbers were up 7.5% and 18.6% to 676,000 tonnes and 485,000 tonnes respectively. In the fertiliser segment, urea output was up 4.5% to 932,000 tonnes. Refinery throughput rose 16.7% to 101.5mn tonnes. However, growth was related largely to expectation of strong growth in the Chinese market, growth that turned out to be elusive. As a result of the inventory overhang from H110 coupled with the strengthening yuan and lower US PE prices are putting pressure on local suppliers' prices, BMI's outlook for H210 and going into H111 is bearish. We expect a rationalization of the Chinese petrochemicals industry, which will have to address the problems of overstocking, lower than expected demand growth and a drastic increase in volumes from the Middle East and new start-ups in China and Singapore. China's annual PE demand is expected to grow by 8-9% in 2010 and 2011, but new capacity will reduce imports by up to 14% from the 7.4mn tonnes imported in 2009, although this will be more at the expense of neighbouring Asian states while Middle Eastern suppliers will be unaffected. In terms of polymer capacities, we forecast a 1.65mn tpa increase in PE capacity and a 1.49mn tpa increase in PP in 2010, ensuring polymer market self-sufficiency should approach 75% PE and exceed 100% PP. We see the petrochemicals market following GDP growth rates, rather than the above-trend rates seen in recent years. Under the petrochemical stimulus plan, China aims to boost its annual crude oil processing, fuel output and ethylene output to 405mn tpa, 247.50mn tpa and 15.5mn tpa by the end of 2011. BMI believes that, on the basis of current projects, China could have ethylene capacity of 17.91mn tpa by the end of 2011. There are concerns that the industry is growing too fast, yet lagging behind in terms of efficiency and cost competitiveness. BMI has been warning that overcapacity could become a problem in the short term amid a downturn in domestic demand growth, but that in the long term it will continue to see petrochemicals demand growing faster than domestic capacity expansion, requiring continued imports. In the Asia Petrochemicals Business Environment Rankings matrix, China's score is 78.5 points, 0.6 points behind South Korea and 3.5 points ahead of Singapore. Although China's petrochemicals market ratings are the highest in Asia, it remains weighted down by a relatively poor financial and trade infrastructure and negative risks specific to the petrochemicals sector, namely reliance on imported feedstock and overcapacity in some segments.

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China Petrochemicals Report Q4 2010
Published on September 2010
Report Summary
The massive government stimulus in 2009 created unsustainable inflationary pressures and unrealistic expectations, and with lending
slashed the Chinese petrochemicals industry will remain weighed down by an inventory overhang throughout H210 and going into
2011, according to BMI's latest China Petrochemicals Report.
PE and PP production surged in the period of January-June 2010 in China, with apparent demand growth (domestic production plus
imports) for polyolefins was 20%, while actual demand growth (minus stock building) was just 10%. Domestic production was up by
30% with total polyolefin imports rising by only 1%. In H110, leading Chinese petrochemicals producer Sinopec's ethylene output rose
41% year-on-year (y-o-y), to 4.2mn tonnes, plastics were up 30% to 6.09mn tonnes and fibres and synthetic rubbers were up 7.5%
and 18.6% to 676,000 tonnes and 485,000 tonnes respectively. In the fertiliser segment, urea output was up 4.5% to 932,000 tonnes.
Refinery throughput rose 16.7% to 101.5mn tonnes. However, growth was related largely to expectation of strong growth in the
Chinese market, growth that turned out to be elusive.
As a result of the inventory overhang from H110 coupled with the strengthening yuan and lower US PE prices are putting pressure on
local suppliers' prices, BMI's outlook for H210 and going into H111 is bearish. We expect a rationalization of the Chinese
petrochemicals industry, which will have to address the problems of overstocking, lower than expected demand growth and a drastic
increase in volumes from the Middle East and new start-ups in China and Singapore.
China's annual PE demand is expected to grow by 8-9% in 2010 and 2011, but new capacity will reduce imports by up to 14% from
the 7.4mn tonnes imported in 2009, although this will be more at the expense of neighbouring Asian states while Middle Eastern
suppliers will be unaffected. In terms of polymer capacities, we forecast a 1.65mn tpa increase in PE capacity and a 1.49mn tpa
increase in PP in 2010, ensuring polymer market self-sufficiency should approach 75% PE and exceed 100% PP.
We see the petrochemicals market following GDP growth rates, rather than the above-trend rates seen in recent years. Under the
petrochemical stimulus plan, China aims to boost its annual crude oil processing, fuel output and ethylene output to 405mn tpa,
247.50mn tpa and 15.5mn tpa by the end of 2011. BMI believes that, on the basis of current projects, China could have ethylene
capacity of 17.91mn tpa by the end of 2011. There are concerns that the industry is growing too fast, yet lagging behind in terms of
efficiency and cost competitiveness. BMI has been warning that overcapacity could become a problem in the short term amid a
downturn in domestic demand growth, but that in the long term it will continue to see petrochemicals demand growing faster than
domestic capacity expansion, requiring continued imports.
In the Asia Petrochemicals Business Environment Rankings matrix, China's score is 78.5 points, 0.6 points behind South Korea and
3.5 points ahead of Singapore. Although China's petrochemicals market ratings are the highest in Asia, it remains weighted down by
a relatively poor financial and trade infrastructure and negative risks specific to the petrochemicals sector, namely reliance on
imported feedstock and overcapacity in some segments.
Table of Content
Executive Summary ... 5
SWOT Analysis .... 7
China Petrochemicals Industry SWOT. 7
China Political SWOT .... 7
China Economic SWOT .. 8
China Business Environment SWOT .... 9
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Global Overview 10
Petrochemicals Market Overview ...... 10
Table: World Ethylene Production By Country, 2009 And 2014 ('000 tonnes capacity) . 10
Financial Results ... 14
Table: Financial Results Of Major Petrochemicals Companies, 2009 14
Global Oil Products Price Outlook .... 15
Table: Oil Product Price Assumptions, Q409-Q410 (US$/bbl).... 17
Table: Oil Product Price Data And Forecasts, 2007-2014 (US$/bbl) . 18
Emerging Asia Petrochemicals Market Overview ... 19
Table: Asian Ethylene Projects ... 21
China Market Overview ... 22
Table: China's Petrochemicals Sector ' HDPE Capacity .... 22
Table: China's Petrochemicals Sector ' LDPE Capacity .... 23
Table: China's Petrochemicals Sector ' LLDPE Capacity ... 23
Table: China's Petrochemicals Sector ' PP Capacity ... 24
Table: China's Petrochemicals Sector ' Cracker Capacity .. 26
Table: China's Petrochemicals Sector ' PVC Capacity 27
Table: China's Petrochemicals Sector PS Capacity ...... 30
Energy Inefficiencies And Bottlenecks ...... 30
Production ...... 31
Table: China's Supply And Demand Volumes Of Major Petrochemical Products .... 32
Table: Cracker Capacity, 2006-2013 ('000tpa) ...... 34
Industry Trends And Developments ... 35
Table: China's Petrochemicals Sector ' Ethylene Projects .. 35
Table: China's Petrochemicals Sector ' PE Projects .... 36
Table: China's Petrochemicals Sector ' PP Projects .... 37
Table: China's Petrochemicals Sector ' PS Projects .... 37
Upstream . 38
Olefins ..... 39
Intermediates .. 40
Integrated Projects 42
Possible Foreign Joint Ventures . 48
Other Projects . 49
Regulatory Developments .... 50
Business Environment ... 52
Petrochemicals Business Environment Ratings ...... 52
Table: Asia Pacific Petrochemicals Business Environment Ratings .... 52
China's Foreign Investment Policy .... 54
Foreign Trade Regime .. 55
Industry Forecast Scenario .... 57
Table: China's Petrochemicals Sector, 2007-2014 ('000 tpa, unless otherwise stated) ... 59
Macroeconomic Outlook ...... 59
Table: China ' Economic Activity, 2007-2014 61
Company Monitor ..... 62
China Petroleum & Chemical Corporation (Sinopec) ... 62
Country Snapshot: China Demographic Data .. 66
Section 1: Population .... 66
Table: Demographic Indicators, 2005-2030 .... 66
Table: Rural/Urban Breakdown, 2005-2030 ... 67
Section 2: Education And Healthcare 67
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Table: Education, 2002-2005 ..... 67
Table: Vital Statistics, 2005-2030 ...... 67
Section 3: Labour Market And Spending Power ..... 68
Table: Employment Indicators, 2001-2006 ...... 68
Table: Consumer Expenditure, 2000-2012 (US$) ... 68
Table: Average Annual Manufacturing Wages, 2005-2012 .. 69
Glossary Of Terms ... 70
Table: Glossary Of Petrochemicals Terms ...... 70
BMI Methodology ..... 71
How We Generate Our Industry Forecasts ...... 71
Chemicals and Petrochemicals Industry ... 71
Cross Checks .. 72
Business Environment Ratings .... 73
Table: Petrochemicals Business Environment Indicators And Rationale .... 74
Weighting . 74
Table: Weighting Of Indicators .. 75
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