BLOG: China could still become entirely petrochemicals self-sufficient despite EVs impact on refineries

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: China has set itself a target that 40% of all the vehicles on its roads will be electric by 2030. And by that year, the aim is that all new-vehicle sales will be electric vehicles (EVs). The country wants to reach peak carbon emissions before 2030 and carbon neutrality before 2060.

“After 2030, it is going to be pretty much impossible to get approval for a heavy industry project because of the emissions targets,” said a petrochemicals industry source.

This has led to suggestions that the resulting lower availability of feedstocks from local refineries will slow China’s push towards complete petrochemicals self-sufficiency. I disagree for the following reasons.

Despite a cap on local refinery capacity, I’ve been told that local supply of naphtha, etc shouldn’t be a problem until up to a least 2030, because refineries will be increasingly turned in petrochemicals feedstock centers.

More naphtha and gasoil crackers are expected to be added to refineries ahead of the 2030 cut-off point. Other heavier fractions from refineries are also forecast to be increasingly used as petrochemicals feedstocks.

And even if local feedstock supply does become constrained after 2030, we shouldn’t assume that this will restrict domestic production because of the weaker-tonne economics of importing raw materials.

China’s closer geopolitical relationships with the Middle East, along with increased availability of natural-gas liquids in the Middle East, suggest that imports of feedstocks will be available at the right costs.

My view is that China’s economic challenges will result in annual average petrochemicals consumption growth of 1-3% per year up until 2030. Beyond 2030 I see growth falling to around 1%.

Weaker demand growth will of course make it easier to increase petrochemicals self-sufficiency.

Because recycling is mainly a “local for local” business due to the restrictions on moving plastic waste across borders growth of recycling in China will, in my view again, increase the country’s self-sufficiency in polymers.

Recycling is exactly the type of higher-value industry China needs to nurture as it attempts to escape a middle-income trap made very deep by its demographic challenges.

Security of local supplies of raw materials in an ever-more uncertain geopolitical world will add further momentum to the growth of recycling in China.

Local virgin polymer and petrochemical plants will run at high operating rates, supported by maximising supply of feedstocks from local refineries and by competitive imports of feedstocks from China’s geopolitical partners. This will further boost supply security.

Don’t be therefore distracted by suggestions that the growth of EVs in China and the country’s emissions targets will be good news for petrochemical exporters to China.

China will become a vast continent-sized market that will be just about entirely self-sufficient. As I shall explore in a later post, this will apply to specialty as well as commodity grades of petrochemicals.

Overseas producers most focus on markets elsewhere. As the chart below shows using high-density polyethylene (HDPE) as an example, the opportunities in other countries and regions are big.

China lifted all petrochemicals boats during the 1992-2021 Supercycle, making even the least-competitive companies successful. This is no longer the case.

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.