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Petrochemical Companies: Competing with China

Petrochemical Company

The IHS Chemical Economics Handbook explains that China is one of the three fasting-growing markets for petrochemical companies. Self-reliance and growing domestic demand are just a couple factors that have contributed to China’s growth in this sector. While the country’s contribution to world production has increased over the past couple decades, the United States has its own advantages to help it remain competitive.

China’s Petrochemical Industry

In 2013, a report by KPMG provided an overview of China’s petrochemical industry. The nation’s growing urbanization continues to drive the demand for products made with petrochemicals. Dedicated to self-reliance, China has pulled many resources into building facilities to help meet its own demand. New ventures are particularly focused on the production of naphtha. The production levels of certain petrochemical companies now rival those of other global players. For example, as of 2013 China was the world’s second-largest producer of ethylene.

However, the landscape has changed over the past couple years. China faces issues with overcapacity, as current facilities are trying to cover the nation’s demand while new facilities are under development. Furthermore, the Canadian National Post reports that domestic opposition to large plants due to environmental concerns has grown, impeding China’s petrochemical growth.

Furthermore, China’s overcapacity issues are not easily correctable. In a report prepared by Roland Berger Strategy Consultants, it is explained that China has not been able to keep up with increasing demand for feedstock. Specifically, China needs other feedstock options aside from naphtha. While coal and shale are alternatives, environmental concerns are again obstacles to further pursuits. This means that country will remain a net importer of feedstock for the next several years.

The United States Advantage

Shifts in China’s petrochemical outlook have also been impacted by technological and extractible advantages within the United States. Roland Berger stated the nation has significant resources that can now be tapped using unconventional technology. These include coal-bed methane gas, shale gas, and tight gas.

Indeed, the Canadian National Post reports that the fracking and shale gas revolution has already helped American companies produce petrochemicals at half the cost of their Chinese counterparts. The United States is also expected to build several gas-based plants over the next decade, further aiding its growing production advantage.

Going back to the Chemical Economics Handbook, Latin America is listed as the second of the emerging petrochemical markets. The United States is currently exporting to countries like Mexico. However, increasing demand in the region is particularly advantageous to the United States due to its proximity. American companies are also attracted by the region’s economic growth and increase in political stability.

Global Oil Prices

Earlier this year, Chemical & Engineering News reported on how the decline in global oil prices would affect the petrochemical industry. The majority of United States petrochemical companies use natural gas, meaning they have less reliance on oil. Oil prices have declined significantly throughout 2014, aiding nations like China that have petrochemical industries dependent on oil. While this might temporarily aid China, oil prices will eventually rise, hurting margins.

Overall, recent advancements in gas and oil technology are what will allow the United States to compete with China within the petrochemical sphere. While China is struggling to meet its domestic demand, the United State’s abundant supply of non-conventional resources will help protect against global trends such as oil price fluctuations. In this age of globalization, there will always be a concern of how the United States will compete. Regarding petrochemicals, there isn’t much reason for pessimism.

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