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Unstable with Diverse Opportunities
Entire market in recovery, but new expansion projects of in China and the Middle East to stimulate sluggish market in 2010
Unstable with Diverse Opportunities
  • By matthew
  • January 15, 2010, 11:56
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The petrochemical industry in 2010 is expected to experience a recession in the second half of the year following the morose start in the first half, since the aggregate demand in the industry has a high possibility of being listless due to the exhaustive effects of the huge stimulus policy of China and the hodge-podge pickup of the global economy. Furthermore, the boosting operating ratios of facilities in the petrochemical industry and China’s completed investment projects are causing supplies to pile up. Even though the Chinese monetary authority just began its ‘exit strategy’ by raising the key rate, the end of the recession is expected to be officially announced before the end of the first quarter in 2010 by the NBER (National Bureau of Economic Research), and most BRIC countries are facing recovery, economic recovery will not directly translate to a petrochemical industry recovery in 2010.

The industry, which is currently oversupplied and well-known for being highly dependent upon exports to China, has been negatively influenced by the additional establishment of new facilities in China and the Middle East since the second half of 2005, with decreasing profits still ongoing. In 2008, the profit productivity of the industry as a whole was heading drastically toward downturn because of ebbing demand following the global economic recession. However, a quick rebound in profitability occurred the following year in response to the economic recovery by the huge expansionary policy in most countries, and more import from China with which Korean petrochemical industry has mainly traded. The recovery was temporary, and the third quarter was another turning point to give up the recovery as a stable tendency.

On the other hand, the worldwide upgrade of facilities, especially in China and the Middle East is still anticipated to be burdensome for global market conditions of the petrochemical industry at least until 2011. In the middle of the second half of 2009, 3.25 million tons of ethylene production is to be upgraded in China, and 3.9 million tons for the Middle East. Seven million tons of additional upgrade projects are to be executed in 2010 globally.

The Middle East, the impervious crown holder in regards to cost competition, is under a long-term project to aggrandize their facilities between 2006 and 2011, which will account for 56% of the global upgrade. The production capability of ethylene during this period is predicted to grow by 22% on average annually, while 22% of the global production of ethylene will occur in Middle East countries in 2011, up from 8.5% in 2006.

In the case of Asian countries, where quick burgeoning occurred in the petrochemical industry in 2009, equivalent volume and trend of market increase of 2009 would hardly be reiterated in 2010 especially because China 2009 with magnificent stimulus package is now on the verge of the ‘exit strategy’ with the hike in key rate, and the inventory demand for the major petrochemical products in China is already sufficiently expanded.