Slowing Economy Means Mixed Fortunes for Asia’s Chemical Industry

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Despite a slowdown in China’s economic growth that saw the country’s economy advance just 6.9 percent 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, said IHS, the leading global source of critical information and insight. 

“Demand growth for chemicals in China will continue to provide opportunities for the global chemical industry,” said 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. Currently, the country 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 said, but also in unconventional chemicals. “By 2020, close to 40 percent of olefins in China will come from unconventional feedstocks, such as methanol-to-olefins (MTO), coal-to-olefins (CTO), and propane dehydrogenation (PDH),” Pang said. “This is up from 20 percent in 2015, and up from a rate of nearly zero percent of olefins coming from unconventional sources just five years ago. We at IHS Chemical expect investments in unconventional olefins production to peak this year at more than U.S. $20 billion.” 

Pang will delve into the opportunities and new growth areas in the Chinese market in his upcoming presentation at the Third Annual Asia Chemical Conference, scheduled for 5-6 November, 2015, in Singapore. He will discuss implications of the slowdown in China’s GDP growth on energy and chemicals, as well as major trends in the country’s chemical sector. 

“The world economy is stuck in low gear,” said Nariman Behravesh, chief economist at IHS. “Since 2011, global growth has been ‘range-bound’ between 2.5 percent and 2.8 percent—well below the average growth rate of the past two decades,” Behravesh said. “The world economy is being dragged down by supply-side and demand-side constraints.” 

However, Behravesh said lower oil prices are actually benefitting 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.” 

The rest of Asia, however, 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,” said 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, however, due to concerns over China’s economy, as well new supply coming on-stream. “Producers fear that China’s economic performance will be less robust than forecast,” Potter said, “which could undermine demand. Additionally, they know that in 2017, the global market will have to accommodate large volumes of new material from the new coal-based Chinese plants, and the new ethane crackers expected online in the U.S.” 

Potter cautioned, however, 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, he said, the supply-demand stories for elastomers and fibers are complicated by large inventory overhangs of natural rubber and cotton. 

Martin Laudenbach, president, Asia Pacific, at Solvay, will deliver a keynote at the conference, where he will also discuss Asia’s role in the next chemical cycle.  

A number of other industry and IHS experts will join Pang, Potter and Solvay’s Laudenbach in presenting insight and analysis relative to the outlook for the global and Asian chemical industries. The IHS Asia Chemical Conference is the only event providing a comprehensive, integrated picture of Asia’s chemical industry, with analysis consistent across multiple value chains and end-use markets.

About IHS 

IHS is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 150 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs about 8,800 people in 32 countries around the world.