Market Overview Robust domestic demand coupled with cost advantages over industrialised Western nations has made China a key consumer as well as supplier of chemical products. It is currently the world’s third-largest consumer of chemicals. The country is greatly reliant on chemicals imports, however, and demand is expected to climb further. China’s chemical industry remains lucrative, especially after the country’s entry to the World Trade Organisation (WTO) in 2001. The volume of petroleum oils and oils obtained from bituminous minerals produced in 2008 totalled 14,775.91 kilotonnes according to reports from ChemDaily. This represented a year-on-year (y-o-y) increase of 3.09%, the slowest growth total since 2005. The slowing of the global economy and falling oil prices has been the key reason for falling production, although a number of companies are maintaining their investment plans in the country.

Shanghai Chemical Industrial Park Feels The Strain Reports in the Shanghai Daily in early 2009 claimed that the Shanghai Chemical Industry Park (SCIP) recorded virtually zero growth in 2008 as a result of falling prices and demand. Despite this setback the park expects double-digit growth in 2009, an outcome that BMI believes will be difficult considering the current global economic environment. In 2008, sales at SCIP – which is home to chemicals giants such as BP and Bayer – reached CNY51.54bn (US$7.5bn), up only slightly on sales of CNY51.13bn (US$7.44bn) in 2007. However, SCIP is confident that growth will improve in 2009 due to increases in fixed capital investment.

Industry Developments In February 2009, according to Chinese officials cited by Bloomberg, the Chinese government may approve a stimulus plan for the oil refining and petrochemicals industries in order to invigorate the country’s troubled economy. Officials at the state-backed China Petroleum and Chemical Industry Association (CPICA), who declined to be named because of internal rules, said that a proposal had been submitted to the State Council that includes provisions for fiscal incentives and the speeding up of building projects.

According to reports in Xinhua, in terms of the chemicals sector, the stimulus package will focus on improving industrial infrastructure and encouraging manufacturers to move into high-end and technologically advanced product areas. This would reduce the country’s reliance on imports of hi-tech chemicals. In a recent report, the CPICA claims that the chemical sector is unbalanced. Low-end chemical manufacturing has excess capacity, while high-end products are under-produced, with imports making up the shortfall.

Industry Forecast In 2008, China’s chemicals industry was worth US$205.2bn, representing growth of 5%. By 2013, we expect the market to reach a value of US$242bn. With the onset of the financial crisis, however, production has been negatively impacted. Growth for most of the leading chemical products has slowed, with output for sulphuric acid actually decreasing by 4.3%. As an important commodity chemical used for a variety of industrial purposes, the production of sulphuric acid can be seen as an indicator of a country’s industrial strength. Therefore, the decline does not bode well for the chemicals industry in 2009 or, by extension, the rest of the Chinese economy.