Polypropylene should continue its reign as China's top resin in the near future, but not without challenges.
``There will be huge polyolefin capacity increases in the Middle East as well as in China in the next few years,'' said S.S. Naik, who heads China operations for PP maker Reliance Industries Ltd. of Mumbai, India. ``But much of it won't be absorbed by the developed world. As a result, we'll see low operating rates in the next three to four years,'' he said June 9 at TEMPI 08.
As to whether China will be able to continue its growth and maintain its position as ``the world's factory,'' Naik said: ``If growth in China is a bubble, companies have to question their return on investment. And a 1 percent drop in U.S. [gross domestic product] equates to a 0.25 percent drop in Chinese GDP.''
In the near term, Chinese PP demand should be unhindered by these larger economic factors. PP use there is expected to grow almost 30 percent between 2007 and 2010. Current Chinese PP demand is pretty evenly split between injection molding, raffia and film and sheet, each with about a 25 percent share.
The aftermath of the upcoming Beijing Olympics also may not affect China as much as previous host nations, since preparation for the games represents only 0.3 percent of China's national spending. Previous host nations such as Spain and Greece had a higher portion of their economy impacted by the games, Naik said.
Also on the upside for PP makers like Reliance is the high percentage of income spent by the average Chinese consumer on polymer products. This number is higher than in other parts of the world because of the rapid increase in the disposable incomes of Chinese citizens, Naik said.
And although China is adding almost 7 billion pounds of PP capacity from 2009-10, the country will continue to import a similar amount. Its 40-45 percent PP import share may decline, but Chinese processors still will depend on imported PP, he said, adding that some in-country Chinese PP projects could be delayed because of the wave of PP work being done in the Middle East.
Challenges facing Chinese PP processors in the near future include power shortages, credit tightening and a reduction in value-added tax. ``The reduction in VAT is forcing customers to use imported resin in products,'' Naik said. ``If VAT goes down to 5 percent, people will lose money if they use local material for finished products.''
Naik said he believes China will be the world's biggest producer and consumer of PP by 2010.