Continual evolution due opportunities offered bydragon economy

Continual evolution due to opportunities offered by the dragon economy

3:23 PM, 12th November 2018
Chemical industry

By Roshani Ballal

The chemical sector across the globe has witnessed various transformations over the past couple of decades. With the steady demand for chemicals from several sectors, manufacturers have been hard-pressed to increase production, without violating the stringent environmental regulations. The chemical industry has always been sensitive to the broader, macroeconomic trends – the bullishness in global economies is likely to create sustained opportunities for the sector. China, where the chemical sector, has been on an ascendancy, is staring at a certain degree of uncertainty, owing to the trade war with the US. China’s ascendancy as a global economic powerhouse can be attributed to the consistent growth in its major industries.

China is not only one of the largest economy in the world but with the growth rate of over 6 percent, China’s economy is set to surpass the US by 2030. The broader gains in China’s manufacturing and service industries are also likely to influence the growth of the country’s chemical sector. The fundamentals of the chemical sector in China remain strong – access to foreign capital, centrality to trade routes, and a large pool of affordable labor have given China an edge in global manufacturing landscape. Being one of the largest producers and exporters of chemicals, China offers a promising market to the companies dealing with chemicals and chemical products.

Chemical Prices Ascend as China tightens the grip on Environmental Concerns

The government of China has inclined their focus on the environmental concerns impacting the country and is working towards addressing pollution and other environmental issues. The government is implementing strategic plans for the same. The establishment of Hazardous Chemicals Department in China is one such strategic move incorporated by it for the security, management, and supervision of hazardous chemicals. This move is expected to reinforce the chemical sector with stringent norms and a systematic approach to deal with the manufacturing of hazardous chemicals. The increasing measures for combating the pollution problem are expected to worsen the pressures on the supply of petrochemicals that could probably lead to an increase in the prices of chemicals.

The stringent regulations have also resulted in the shutdown of various chemical plants in the country which is expected to increase the export of chemicals to China, with Germany accounting for the bulk of exports. With nearly 40 percent of the total manufacturing capacity of China being shut down temporarily according to the statistics of 2017, over 80,000 factories were charged for breaching emissions levels. The stringency in chemical production has opened up opportunities for other market players in Asia Pacific.

Feasibility of Specialty Chemicals as a Sustainable Solution Influencing Institution-Industry Investments

The specialty chemicals market in China has been witnessing rapid growth in the last decade compared to the rest of the world. Furthermore, the emphasis given to improving the quality of life with the growing environmental responsibility, penetration of specialty chemicals is likely to increase in the future. With the rising environmental consciousness the demand for innovative products is rising. Lightweight chemicals such as polymers and specialty coatings for cost-effective manufacturing of cars is fostering the significance gained by specialty chemicals in China. The lucrativeness of the specialty chemicals in China can be gauged from these aspects. With the strategic expansion of AkzoNobel Specialty Chemicals in China in the year 2017, the company is focused towards providing chemical compounds to the chemical intermediaries and manufacturers in the fabric softeners industry.

Another chemical and tech material producing company, South Korea’s SFC Co, was seen planning an investment of over 70 billion dollars for adding wet and polyurethane chemical production facilities that are find their application in motor vehicles and cleanroom component manufacturing.

Foreign Investments: The Catalyst to Growth of Chinese Chemical Sector

The chemical sector in China has been witnessing various changes amidst the regulations and changing tariff plans of the country. While various existing plants are shutting down owing to non-compliance, foreign investors are offsetting some of the sluggishness.

Amidst the trade war with the US, provinces in China seek to offer cooperation to the leading companies in the United States. Companies such as ExxonMobil are focused towards expanding the chemical manufacturing facilities in the Asia- Pacific region. It has recently agreed to invest in the China chemicals sector. The multibillion dollar deal would include over a million tons per year ethylene flexible feed steam cracker, two performance polypropylene lines that are differentiated, and two performance polyethylene lines. Planned for the year 2023, the project would foster China’s priorities of developing petrochemicals including advancing competitive technology and self-sufficiency.

Similar initiatives are being taken by BASF, a German chemical company and the largest chemical producer across the globe. Their plan to build highly integrated chemical plant in the country is expected to be amongst the largest investments made by the country with the investment to account for nearly ten billion US dollars. With a plan to complete their first plant by the 2026, the project completion is expected around the year 2030.

The spate of foreign investments in China is not limited to chemical companies along – tech companies are also getting in the act. Moreover, there are global technology and services provider companies such as KBR, that are focused on providing support to the newly opened olefin plants in China. On account of its contract with Lihuayi Lijin Refining and Chemicals Co, the company would provide supply technologies fit to assist the company in the development of petrochemicals with the help of an energy-efficient and green process.

As the chemical sector witnesses various changes, the China chemical industry is witnessing a greater level of collaboration. The merger of the two big companies, Sinochem Group and ChemChina is expected to send ripples across the markets in China. Despite outsized debts, reducing returns and suppressed earnings, the merged company portrays a ray of hope for the chemical sector. However, even though the combined entity portrays to be a giant, it being just one player in the market, would cause unwanted scenarios for the chemical industry.

Apart from this, SABIC, a petrochemical manufacturer has signed a MoU with the Fujian Province of China. With this MoU, the company aims to seek new opportunities for investments, thereby strengthening its share in the chemical market of China. Moreover, with the establishment of plants by companies of other countries, in China such as the Mitsubishi Chemical Corporation’s plan to construct performance polymer production site in China, the chemical industry in China opens new opportunity doors for companies dealing with chemicals.

Furthermore, the coal-to-chemical approach is escalating the growth of the China chemical sector, which is gaining greater significance. Companies are involved in researching on the possibilities of the approach to fuel chemical industry in the provinces of China.

While the chemical industry faces various evolutions and changes, the chemicals market in China is likely to be subjected to regulations and norms. These scenarios would portray major development in the chemical industry.

Author: Roshani Ballal is Business Writer at Future Market Insights.

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