China, other developing economies to buoy petrochemical industry

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Demand for petrochemicals from developing countries, especially China, will help the industry gradually recover from the recent global economic slump as well as alter dynamics in the sector for years to come, executives and observers said Wednesday. China will help "pull the industry out of the trough" despite its own recent weaker economic performance, said Paul Pang, a senior director for IHS, which hosted the World Petrochemicals Conference in Houston. China's economic growth in GDP was 9.2% in 2011, compared with 10.3% the previous year. "In our forecast, the Chinese economy and petrochemical industry will continue to grow at a high rate, despite the recent slowdown," he said, noting that the petrochemical industry in China has grown by six-fold since 2001, when it was a relatively small player in the field. He conceded that the pace of petrochemical capacity growth will slow, and China will continue to depend on imports to fill the gap in its supply. Plus, the recovery will not be overnight. "We expect that the industry will continue to experience weak margins during most of this year, but will come out of the trough toward the end of the year," he added. During this time, China will continue to build large-scale, integrated petrochemical projects. By end of 2017, China is forecast to have installed an additional 5 million metric tons of annual ethylene capacity, for example, he said. This type of activity will go toward meeting a forecast annual global demand for all basic chemicals and plastics of 1 billion mt by 2020, up from 680 billion mt today, said IHS chief adviser for chemicals Gary Adams. Most of that growth will be in developing countries, mainly China, and demand in developed countries will be relatively flat, with North America taking the biggest share. Demand for petrochemicals in growing developing countries can often exceed twice the growth rate of their GDP, Adams said. Some 200 million mt of the 2020 forecast would be traded internationally by that year, he added, as such movements are expected to continue to accelerate. The production of unconventional oil and natural gas resources in new locations, plus the movement of plants for low-cost plastic and chemical finished products to areas with cheaper labor will shift trading patterns, he said. South America will also be a dynamic region for both petrochemical production and trade, with Brazil as the world's seventh-largest petrochemical producer, said Joao Parolin, CEO of Oxiteno, a chemical company that is Latin America's largest producer of surfactants. "South America has a serious deficit of petrochemicals" despite having abundant natural resources needed to produce them, Parolin said. South America's GDP per capita is twice that of China's, he noted. New discoveries of shale gas and other unconventionals, however, could help propel the industry as an attractive new source for feedstock, he said. For example, Petrobras' massive Comperj refinery project, set to start operating in 2013, is looking at using ethane or propane as a feedstock.