The petrochemicals industry has proven resilient in the face of a managed slowdown, implemented to avert a 'boom and bust' scenario. However, project delays, lower consumption growth and growing doubts over the economic viability of coal- and methanol-based petrochemicals have reduced the expected rate of petrochemicals growth over coming years. Margins are under pressure with naphtha remaining the most competitively priced feedstock, while prices in some polymer segments are softening due to regional oversupply. More generally, the Chinese economy remains mired in a medium-term slowdown as structural weaknesses are yet to be fully addressed. These include the dominance of inefficient state-owned enterprises, overcapacity in the industrial sector, including petrochemicals and their end markets and rising corporate leverage. They have not improved significantly and, in the case of the latter, it has deteriorated.
Chinese ethylene output shrank 2.3% y-o-y to 10.4mn tonnes in 7M17, while primary plastic grew 7.6% to 50.0mn tonnes and plastic products rose 5.6% to 45.9mn tonnes. Low naphtha prices are continuing to undermine growth in coal-based production, while low refinery capacity utilisation rates reduce the availability of naphtha, which will be the main feedstock used for the new cracker production capacity that is fundamental to the petrochemicals value chain. With cracker capacity continuing to rise, this raises questions about the viability of many high-cost coal-to-olefins (CTO) plants that are the basis of China's petrochemicals expansion plans.