China relentlessly adds new petrochemical capacity despite a global glut as the country’s refiners diversify away from transportation fuels, threatening to squeeze global margins through 2024 as weak economic growth weakens the economy. asked.
In a worrying sign for producers of chemicals used in plastic packaging, polyester clothing and auto parts, refiner profit margins on converting naphtha to ethylene turned negative last week for the first time since April. ‘october.
The profit crunch is due to Chinese refiners ramping up production of olefins such as ethylene to offset expected declines in gasoline and diesel sales as adoption of electric vehicles picks up pace. Their capacity expansion is outpacing the growth in demand for chemicals.
Global ethylene and propylene demand is expected to rise 29% from 2023 to 426.8 million metric tons by 2030, while capacity is expected to jump 25% from 2023 to 485.9 million metric tons by 2030, estimates research firm Wood Mackenzie (WoodMac).
According to the International Energy Agency, new capacity in China is expected to account for more than half of this growth.
In 2023, WoodMac predicts that China’s production growth will create a local surplus of 4.24 million tonnes of ethylene and an even larger oversupply of propylene of 8.69 million tonnes.
“Surplus olefins will be pushed over water for disposal elsewhere in Asia or further afield in Europe and the United States at heavily discounted prices,” Energy Aspects analysts said in a note.
“This poses more risk to utilization rates in the rest of Asia and Europe, which are more sensitive to margin compression.
BATTLE FOR MARKET SHARE
New refining complexes launched by Guangdong Petrochemical and Jiangsu Shenghong Petrochemical, two private companies of state giant PetroChina, have added to the growing supply of petrochemical products from mega-refiners Zhejiang Petrochemical Corp and Hengli Petrochemical, which have been in service in recent years.
Despite the pressure on margins, Chinese producers should keep their plants operating to protect market share and avoid larger losses that would result from closing units, said a Chinese refining industry source who declined to comment. to be named.
Producers are already feeling the pain in their battle for market share.
Asia’s largest refiner, China’s state-owned Sinopec Corp, warned in its first-quarter report that its chemicals business was coming under pressure from competing new supply and a tentative recovery in demand.
Independent refiner Hengli Petrochemical’s net profit fell nearly 76% in the first quarter due to “high operating costs and weak industry demand”, the company said in April.
Rongsheng Petrochemical and Hengyi Petrochemical posted net losses in the first quarter.
The world’s largest producer and consumer of petrochemicals, China has been unable to absorb the additional production as its domestic market has struggled to recover from three years of strict COVID-19 restrictions and a weaker global demand for its exports.
Since the pandemic, Chinese consumption habits have favored social activities over spending on goods, Ganesh Gopalakrishnan, global head of petrochemicals trading at TotalEnergies, told Reuters last month.
While Chinese demand in some sectors such as inexpensive clothing and daily necessities is robust, other sectors such as automotive have not yet recovered as expected, said Salmon Lee, global head of polyesters within the consulting company WoodMac.
Highlighting high inventories of petrochemicals, Mr Lee said: “The destocking process could take time: “The destocking process could take time.
($1 = 7.1779 Chinese yuan renminbi)
