JLC, January 17, 2020--The Chinese petrochemical market will face more competition and falling margins in the coming years, as its production capacity is growing faster than demand, JLC said at a forum on Wednesday.

    For the 76 major chemicals involved in JLC research, the compound annual growth rate of production capacity is expected to hit 6% in the coming five years, and growth will peak during 2022-2023, Amanda Zhao, General Manager of JLC International, said at the Refining & Petrochemicals Southeast Asia 2020 Forum in Malaysia. The production capacity of olefin, aromatics, chemical fiber, plastics, among some other products, will climb much faster than the average growth. The PX and styrene industries are likely to post growth above 20% a year.

    Meanwhile, the compound annual growth rate in demand is estimated at 5%, below capacity growth.

    Faster growth in production capacity will cause a supply surplus and intensifying competition in the market, Amanda said. Meanwhile, stocks will climb and stay above the past-four-year average most of the time, whether at ports, tank farms in the circulation sector or producers. The stockpiles already jumped in 2019 and will remain high in the coming years. Take methanol stocks at Chinese ports, for instance. The stocks peaked at about 1.12 million mt in 2019, significantly above past-four-year average, JLC data shows.

    Alongside intensifying competition are shrinking margins for the petrochemical industry. The production margins for chemicals peaked in 2018, and remarkable profits have attracted large investment in the industry, but they started to fall in 2019 and will drop further in the coming years, the data indicates. Some of the margins will flow to the downstream manufacturing industry, and more refineries will extend their industrial chains into the downstream in the coming five years, Amanda said.

    Despite growing capacity, China will remain a large export market for chemicals. The US will continue to ship petrochemicals to China in spite of the trade war. Japan, South Korea and Taiwan that have been chemical suppliers to China will take most of the brunt of China’s rising production capacity.

    In the meantime, countries along the Belt and Road are becoming important markets that contribute to growth in China’s plastic exports.