BLOG: China petrochemicals capacity growth: A new normal of much greater uncertainty

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: Understanding what was going to happen to petrochemicals capacity additions in China used to be easy as all you had to do was read the state-run press.

I am referring to comments in the local media way back in 2014 that China was going to push much harder towards petrochemicals self-sufficiency.

This helps explain why in products such as polypropylene (PP), China’s percentages of capacity over demand could this year exceed 100%.

But conversations with industry sources indicate that interpreting what will happen next to China’s capacity growth has become way more complex.

Let’s start with the decision to cap China’s refinery capacity at some 1 billion tonnes a year from 2027 onwards up to at least 2040. This is a huge change from 2000-2026 when capacity is forecast to increase by more than 250%.

The reason for the cap on refinery capacity is that China wants 40% of its car fleet to comprise electric vehicles (EVs) by 2030. It also wants all new car sales to be EVs by that year.

At first glance, this indicates that China won’t have sufficient local petrochemicals feedstock to maintain its aggressive self-sufficiency push. One could thus reach the conclusion that deficits or imports will rise given the weaker economics of importing feedstocks.

But local refineries may be turned into petrochemicals feedstock centers.

As local transportation fuels demand declines, maintaining good refinery operating rates may hinge on China’s ability to export increasing quantities of gasoline and diesel which in a world of increasing trade tensions may be difficult.

I had thought that China’s push towards peak carbon emissions by 2030 and carbon neutrality before 2060 would make it difficult to get approval for heavy industrial projects for start-up after 2030. Now, though, I’ve been told that the push to reduce carbon emissions is already making it hard to win approvals.

Each province in China has reportedly been given a carbon budget. If a province wants to make room in its budget for a heavy industrial project, it might have to shut down an existing plant.

Combine this with the small scale of some petrochemicals plants in China and we will or already are seeing closures of older plants to make way for new facilities, I’ve been told. This especially applies to the more developed provinces with high carbon output.

If all of this is true, do not assume that this is automatically good news for all petrochemicals exporters to China because of the demographic-driven demand slowdown, China’s sustainability push and the country’s closer relationship with Saudi Arabia.

As I’ve been stressing over the last three years, events in China point to a much more confused and blurred picture. Don’t panic and embrace confusion as this is the only sensible response.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.