Supply Gap and 8% Growth Feeds Frenzy of One Million Ton Ethylene Projects in China

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Keeping up with China's new projects in the ethylene sector of the petrochemicals industry is something akin to observing a mass skateboard bowl competition - having noted that one participant has fallen back on the curve, you follow the latest entrant only to see him peaked out by newcomers who seemed to jump on the up curve from nowhere. Then check how the feedstock deals are affecting the mix.

In 2000, industry sources estimate that Chinese demand for ethylene exceeded seven million tons and domestic production stood at about 4.6 million tons. Current estimates have 18 ethylene production plants in the country producing about 4.7 million tons a year. With Chinese industry analysts estimating domestic demand for ethylene at 12 million tons by 2010 and production capacity reaching about 8 million tons at the same time, the sector, which has a spate of new, major projects at the project planning stage, may see even more proposed in the next two years.

A one million ton per annum ethylene production facility to be constructed at Sinopec Corporation's (NYSE:SNP ) largest oil refinery, the Zhenhai Refining and Chemical Corporation, has been given the go ahead from the state planner, the National Development and Reform Commission (NDRC).

The project, which is sited close to the city of Ningbo in eastern China's Zhejiang province, will have eleven ethylene derivative plants, in addition to the massive ethylene cracker. The $2.7 billion project will produce 500,000 tons of ethylene glycol and 450,000 tons of polyethylene and other ethylene-derived downstream chemicals.

A project source said that there is a possibility that foreign partners will have the opportunity to assist in the development of the ethylene derivative projects. Preparations for the total project will take a full year.

When the project is completed, ZRCC's oil processing capacity will be lifted to 20 million tons a year. Another subsidiary of Sinopec, Shanghai Petrochemical, is currently the largest ethylene producer in the country with one million tons annual production. The 90,000-ton BP/Sinopec joint venture ethylene project, Shanghai Secco, is scheduled to go into production in 2005.

Another one million ton per annum ethylene cracker is at the discussion stage between Dow Chemical (NYSE:DOW )(Midland, Michigan) and potential Chinese partners. The $3 billion plant will also feed derivative product downstream plants. James McIlvenny, Dow's Greater China president said, "We're now looking at wanting to put a fully integrated complex on the ground in China. We're looking at 20% growth this year in China. And we can maintain that sort of rate in the next few years," he said. The site will be on the eastern coast with specific options now being considered. McIlvenny did not say if discussions involved Sinopec, or if it was a revival of plans with that company to build a 600,000-ton cracker in the late 1990s.

Dow is looking to feed a 'ravenous' Chinese market, which Merrill Lynch sees growing by 7 - 8% a year to become the world's largest by 2015. Dow expects China to account for 8% of global revenues this year. China is the world's largest importer of plastic resins and Dow's third largest market after the U.S. and Europe. In 2003, Dow's sales on the Chinese mainland, Hong Kong, and Taiwan hit $1.8 billion, which represented 5.5% of total group sales of $33 billion.

Saudi Basic Industries Corp (SABIC) is another mover and shaker highly active with Chinese market plans. It has been in discussions with Sinopec to build a one million ton per year ethylene cracker and has also been reported to have formed a partnership with the private sector company, Dalian Shide Group to build a $5 billion petrochemical complex, which will include the world's largest ethylene plant. The proposed project is a 50/50 joint venture to be sited in Dalian in northeast China's Liaoning province and will have a 1.3 million ton ethylene cracker and a 10 million ton per year oil refinery. SABIC is also in talks with PetroChina to build a 450,000 ton ethylene plant and a 400,000 ton PVC (polyvinyl chloride facility.

SABIC is now the world's third largest PE (polyethylene), sixth largest PP (polypropylene), and overall the world's fourth largest polyolefin producer. At this year's Chinaplas exhibition SABIC signed up Chinese customers for 200,000 tons of polyolefins.

Other projects on the go include a Nanjing site, where BASF and Sinopec have a $2.65 billion integrated petrochemicals site, with a 650,000 ethylene capacity. China National Offshore Oil Corp (CNOOC) and Shell are developing a $4 billion project in Guangdong. Other Taiwanese and Korean companies are also involved in the 1 million ton plant ethylene feeding frenzy.

The ethylene plant feeding frenzy presents some major opportunities. Market consultants Strategis say that North American manufacturers of petrochemical processing equipment, materials handling equipment, engineering services, factory build-out expertise, and supplies, building supplies, raw materials and pollution control systems are looking at enormous export opportunities.

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