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April 05, 2010 02:00 AM

China gets picky about partners

Frank Esposito
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    As China continues to assert itself in the global plastics and petrochemicals market, the nation is becoming more selective in what it wants — and needs — from the rest of the world.

    “Chinese petrochemical companies will welcome [joint venture] partners with access to feedstocks, but not ones that only have money, expertise or technology,” Chemical Market Associates Inc. market analyst Paul Pang said at his firm's World Petrochemical Conference, held March 24-25 in Houston.

    China now is the world's largest petrochemical market and the second-largest overall economy, trailing only the U.S. In 2009, China accounted for 30 percent of global petrochemical consumption and 24 percent of production. It's also the largest global importer of petrochemicals.

    China is looking to feed its own appetite for petrochemicals by adding 17 billion pounds of ethylene capacity by 2016, as well as massive amounts of polyethylene, polypropylene, PVC and other resins.

    Chinese petrochemical firms had “a good year” in 2009, Pang said, in spite of the global financial crisis. This occurred for several reasons, including restocking, easy credit, speculation and higher demand from stimulus spending by China's government.

    Demand from the Chinese consumer also has grown rapidly. Retail demand accounted for 30 percent of China's gross domestic product in 2005, but increased all the way to 45 percent by 2009. GDP growth is expected to hit 10 percent in 2010, but should slow to 8 percent by 2012, Pang said.

    Exports from China — a major economic factor — were slow in 2009, by its own high standards, but are recovering, with December exports higher than they were for that month in 2008.

    But Chinese growth has not come without challenges. Pang outlined several potential issues that could affect petrochemicals and other sectors of the Chinese economy, including:

    * Too much liquidity leading to excessive investment, including the possibility of a bubble in property prices.

    * Costs rising too fast in production, as well as in labor, where costs have tripled in the past four years.

    * Growing trade disputes with the U.S. and other trade partners.

    * Widening of a wealth gap between developed parts of the country and underdeveloped inland regions.

    In the near-term, the Chinese government already has started to tighten credit and lend less, Pang added. And exports, although improving, are far from their desired level. Domestic demand also is growing, but it can't yet support the country's high overall growth rate.

    But whatever happens in the short-term, one fact doesn't look like it will change.

    “Market changes in China affect the global petrochemical market,” Pang said.

    Copyright 2010 Crain Communications Inc. All Rights Reserved.

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