China bounces back

15:41 PM | January 4, 2021 | Kartik Kohli and Ian Young

V-shaped recovery in economy, chemical industry opens way to faster growth in 2021

The Chinese economy stood out amid the global economic malaise in 2020, staging a v-shaped recovery from COVID-19 with growth expected to continue in 2021. China’s rapid rebound—particularly in the infrastructure, property, and automotive sectors—paves the way for higher demand and prices for chemicals this year despite big, new capacity in some basic chemical sectors.

According to IHS Markit, China’s industrial output rose 6.9% year-on-year in October 2020, 1.2 percentage points above the pre-pandemic annual growth rate in 2019. Its economy grew overall by 2.0% in 2020, slowing from 6.1% in 2019, and will accelerate to grow 7.5% in 2021, IHS Markit says.

Demand for oil in China is already higher than a year ago, according to IHS Markit. Demand for many chemical products is also back to highs approaching, and in some cases exceeding, pre-pandemic levels, boosted by increases in government spending and consumer demand.

According to IHS Markit, China has been able to maintain the necessary condition for sustained economic recovery: containment of the pandemic. This has allowed the rebound to gather momentum, including in the service sector and consumer demand—parts of the economy most hampered by the pandemic—IHS Markit says.

“Underpinning mainland China’s accelerating economic recovery is the effective containment of the COVID-19 pandemic,” says IHS Markit. “Through speedy contact tracing and rapid mass testing, the government has been able to bring new local COVID-19 virus outbreaks quickly under control. Effective pandemic containment has greatly reduced public fears of new outbreaks turning into widespread contagion.”

China’s chemical industry has mirrored the overall economy with a v-shaped recovery. Chemical production in China edged up 0.3% in 2020, a sharp slowdown from growth of 4.9% in 2019, but growth in the country’s output of chemicals is expected to accelerate to 5.4% in 2021, according to ACC.

China’s chemical sector was the first to enter a severe downturn, beginning in December 2019, according to ACC. However, “China was the first nation to emerge from the downturn and by September had fully recovered and entered an expansion stage of the cycle,” ACC says.

The onset of the pandemic in China also highlighted the vulnerability of many international chemical supply chains, which could result in changes starting in 2021, particularly for critical raw materials used in industries such as agriculture, aviation, pharmaceuticals, and semiconductors. “As the pandemic unfolded, chemical supply chains that ran through China were initially disrupted,” ACC says. “Concern [overseas] about supply-chain disruptions will lead to near- and on-shoring, accelerating any such decisions already in consideration prior to the pandemic, for example producers negatively impacted by the US-China trade war considering modifications to sourcing.”

Petrochemical markets, meanwhile, are expected to see the continued impact in 2021 from a massive build-up of capacity in China, particularly for key products such as ethylene and para-xylene.

Companies including Hengli Petrochemical, Liaoning Bora, Sinochem Quanzhou, Sinopec Zhongke, Wanhua Chemical, and Zhejing Petrochemical started up steam crackers during 2020. China’s total ethylene nameplate capacity increased to 32.6 million metric tons/year (MMt/y) last year from 27.1 MMt/y in 2019, according to IHS Markit data. A further six projects, including debottlenecking of existing plants, are set to increase China’s ethylene capacity to 38.9 MMt/y in 2021, IHS Markit says.

The additional supply is expected to undermine the demand and price recovery in China from the COVID-19 pandemic, but the impact will not likely be severe. China’s ethylene market has shown “strong resilience” during the pandemic, says William Chen, executive director/global olefins at IHS Markit. China’s domestic demand for ethylene increased to 30.3 MMt in 2020 from 27.6 MMt the year before and is set to rise again to 32.8 MMt in 2021, according to IHS Markit data.

However, these additions and a continued wave of steam cracker projects due for completion over the next five years adding more than 18 MMt/y of capacity will not be enough to bring the country to its goal of ethylene self-sufficiency, according to Chen. IHS Markit projects China will achieve ethylene self-sufficiency of 73% in 2025. As a result, the country will remain a net importer of ethylene equivalent for years to come.

Meanwhile, China will in 2021 begin its long march to climate neutrality. President Xi Jinping announced last September that the country would become carbon neutral by 2060. A recent IHS Markit report calls it “a historic announcement with global implications for climate change and energy markets. It will require China to execute a nationwide transformation over the next 40 years, that is perhaps even more dramatic than over the past four decades. If done right, it would create a new energy system, and a new economy,” the report says.

China plans to reach peak greenhouse gas (GHG) emissions before 2030. The country is the biggest emitter of GHGs mainly due to its widespread use of coal, which accounts for about 64% of China’s CO2 emissions. Carbon capture and storage, renewables, hydrogen, and electromobility will play a big role in the transformation, the IHS Markit report says.

Following China’s action plan, Sinopec announced that it had partnered with experts in climate change, energy, and chemicals to carry out research on the “strategic path of having [CO2] emissions peak and achieve carbon neutral before 2030.”

The World Petrochemical Conference will take place virtually 8-12 March 2021 and address the theme Chemical Renaissance: Building Resilience, Agility and Innovation in an Enhanced Global Role. IHS Markit and other industry experts will provide hundreds of attendees with the opportunity to get the most in-depth and comprehensive insights on all areas of interest to the chemical and petrochemical industry to help you best position yourself for success in this new world. Learn more