Slowing Economy Means Mixed Outlook for Asia’s Chemical Industry, IHS SaysEngineering 360 News Desk | October 23, 2015
Despite a slowdown in China’s economic growth that saw the country’s economy advance 6.9% in the first three quarters of 2015, demand for chemicals in China remains healthy and growing, thanks to the country’s role as a global leader in consumer goods manufacturing and growing domestic consumption, says IHS.
“Demand growth for chemicals in China will continue to provide opportunities for the global chemical industry,” says Paul Pang, vice president, greater China, for IHS Chemical. Benefiting from its explosive growth in the consumer goods manufacturing sector, China has become the world’s largest consumer of chemicals. He says that the country currently consumes more than one-third of the world’s base chemical production, “which is greater than all of Europe combined or all of North America.”
To meet growing chemical demand, China has invested not only in conventional petrochemicals, Pang says, but also in unconventional chemicals. “By 2020, close to 40% of olefins in China will come from unconventional feedstocks, such as methanol-to-olefins (MTO), coal-to-olefins (CTO) and propane dehydrogenation (PDH),” Pang says. This is up from 20% in 2015, and up from a rate of nearly 0% of olefins coming from unconventional sources five years ago. IHS Chemical expects investments in unconventional olefins production to peak this year at more than $20 billion.
Nariman Behravesh, chief economist at IHS, says that lower oil prices are benefiting the plastics industry and stimulating plastics demand in Asia, particularly in countries such as China and India. “Lower oil prices are driving consumer spending in Asia for many lower-cost consumer goods and electronics, as well as processed foods and soft drinks, all of which are packaged in plastic,” he says.
However, the rest of Asia is likely to feel the pain from the slowdown in China’s growth rates. “The mood of chemical producers in much of the rest of Asia is one of apprehension,” says Tony Potter, vice president, Asia Pacific, at IHS Chemical. “Nonetheless, it has been a good year for many olefin and polyolefin producers, since cracker margins were buoyed by a tight market, and product-price declines generally lagged those of the underlying oil and naphtha prices.”
IHS expects average margins to slip in 2016 due to concerns over China’s economy, as well as new supply coming on-stream. Producers fear that China’s economic performance will be less robust than the forecast, Potter says. This could undermine demand. In addition, starting in 2017, the global market will have to accommodate large volumes of material from new coal-based Chinese plants and new ethane crackers expected online in the U.S.
However, Potter says that not all olefins value chains are equal. Investments in coal- and ethane-based olefins are creating supply gaps in C4s and aromatics. In addition, the supply-demand stories for elastomers and fibers are complicated by large inventory overhangs of natural rubber and cotton.