By John Richardson
This chart should truly take your breath away as it shows that:
- China’s purified terephthalic acid (PTA) exports fell from 2.5m tonnes in January-November 2013 to just over a million tonnes for the same period this year. That is a collapse of around 60%.
- Meanwhile, exports surged – again on the same year-on–year basis – from around 430,000 tonnes to 112,000 tonnes. This represents a 284% increase.
As we approach the New Year we are in entirely uncharted territory for many people. The reason is that they are still holding on to the dangerously misguided notion that this is just another typical downcycle in the polyester chain, albeit an exceptionally bad one.
Anyone who has been in the business for ten years or more will, of course, have seen previous booms and busts where China, and the world in general, has overbuilt in PTA, only to then spend too many years under-investing. This has resulted in a return to deficits.
But regardless of your view of how China’s economy might grow over the next five years, you must analyse how its strategic objectives have changed.
Even if China’s growth was to surprise on the upside, its government has no reason whatsoever to once again return to the position where it requires lots of PTA imports.
Instead, it makes sense for Beijing to develop China into a major, world beating exporter of both PTA itself – and even PTA technologies.
Here is why:
- The objective is no longer jobs, jobs and more jobs in low value export-based manufacturing industries. Instead, it is jobs, jobs and more jobs in high value manufacturing industries, including in the PTA industry.
- And, in fact, there is every chance that China will want to add even more value by moving further up the polyester production chain – towards much-greater paraxyelene (PX) self-sufficiency. This would create additional high value jobs through the development of local PX technologies. These technologies might well also tick the energy independence box by tapping into China’s abundant coal reserves.
More broadly, China is following in the footsteps of the US by first copying and stealing technologies before becoming a world-beating innovator.
And just like the US, it also wants to be energy independent.
So you must also apply the same thinking to other petrochemicals. If what I have argued stands up – and I have never been more certain of just about anything else in my entire life – China will seek self-sufficiency in many more petrochemicals.
The model of building overseas projects to largely serve the China will as a result have to be scrapped. It won’t matter a jot whether or not you have advantaged feedstock. There is no point in having cheap feedstock if there is not enough demand – and we know that without China remaining in big deficits for petrochemicals, there will not be enough demand.
You can also choose to believe that a “lost China” will be replaced by other developing markets, but this would involve re-inventing the rules of basic mathematics.
Tomorrow I will look at what of all the above means for the global polyolefins business and how this long term shift is happening much faster than many people think.