Throughout the Middle East and Asia, ethylene supply is building - new crackers are under construction and old ones are increasing capacity. As supply increases, most companies have their eyes on China.
``Ultimately everything is going to China,'' said Jim Weinrauch, an analyst at Singapore-based Naphtha Information Services LLC, concerning the global ethylene supply. ``That's where all the growth is happening.''
While supply is tight now, stretched thin by China's growing demand for the material, some analysts fear that, in the end, China's demand will not meet lofty expectations.
``Everyone in Asia is focusing on China; everyone in the Middle East is focusing on China,'' Weinrauch said. ``In Asia, there is only one big importer, so the math is pretty simple.''
China's own ethylene supply is expected to grow at an annual rate of 9½ percent through 2015, according to Qu Guangdong, an analyst at SRI Consulting, a chemical industry research firm in Beijing.
New facilities in the works include a PetroChina Co. Ltd. plant in Fushun, expected to begin operating in 2010, producing an additional 1.8 billion pounds per year of ethylene. Another PetroChina factory received official approval this year from China's National Development and Reform Commission to double capacity at its ethylene cracking plant, bringing the plant to 265 billion pounds per year. PetroChina is based in Beijing.
China will build up capacity regardless of what is happening abroad, Qu said. This drive for self-sufficiency could leave foreign producers behind, Weinrauch said.
``Technically the demand is there,'' he said. ``But with the Middle East expanding the way it's expanding, the question is, does China need [to build more] crackers?
``China is making inroads to self-sufficiency just when the Middle East capacity is really building, so, in the end, there may not be enough room for everyone.''
While some companies are planning in advance for a decline in demand for ethylene imports, Qu warns that a shift in dynamics will not happen for a few years to come.
``I think before 2010, a few crackers will start up, but some plants will postpone until about 2015,'' Qu said. ``This postponement will also ease the tension of supply and demand.''
The development already is hitting some snags, said Gao Chunyu, a senior engineer at China Petrochemical Consulting Corp. in Beijing.
``Many companies have had trouble filling engineering contracts,'' Gao said. ``It's a worldwide problem, but it has had an impact on China.''
China has been introducing so many cracking plants, he said, the lack of engineers has been magnified.
``The projects are moving forward, but they are moving forward at a slower pace,'' Gao said of China's new plants. While the problem is global, China continues to rely on exports, and downstream companies may find prices remain high.
Even as the new crackers begin operating, Qu warns that an influx of the material will not be the only factor affecting the price of ethylene derivatives.
``Price changes are also caused by the international oil price,'' Qu said. ``So the capital costs will also be high in the future.''