The growing Asian economy, led by China, offers major market opportunities for petrochemical producers, said Andrew Swanson, vice-president, petrochemicals, for Nexant Inc., San Francisco, at a Canadian Energy Research Institute (CERI) conference June 7 near Calgary.
Swanson said the rapidly expanding Chinese economy is a major opportunity and a token of Asia's new power. But the Indian economy also has opened up dramatically in the past decade, although it is still not as attractive as China. He said the Japanese economy remains stagnant, but Asian economies as a whole have grown at an average rate of 5-6%/year.
China is now the world's largest importer of chemicals and polymers, Swanson said. There is a strong impetus for petrochemical growth in China, and that nation has put in a "very powerful" economic performance, with growth rates substantially higher than the Asian average.
He said there were 76 million consumers of petrochemical products in 2001 in China, and that figure could increase to 701 million by 2015 as the economy grows and per capita income increases.
China concerns
Swanson said there also are a number of concerns related to the Chinese economy, such as its stability; the fact that many Chinese remain employed in state-owned, inefficient enterprises; the prevalence of nonperforming loans; and the lack of transparency on economic statistics, such as the rate of inflation, at both the national and regional levels.
In addition, demographic problems could occur down the road because China, with a population of 1.2 billion, has enacted laws to control population growth, which could lead to a society in which a small number of younger people must support a large number of older people. Swanson said any changes China makes will have a major impact on the world, and Chinese laws and regulations are evolving continuously.
The Nexant executive said, however, that there are major changes under the World Trade Organization that generally will make trading with China easier. He said that after North American Free Trade Agreement markets, the Chinese market cannot be ignored.
Other issues
Richard Paton, president and CEO of the Canadian Chemical Producers' Association, said that although the industry has moved into recovery, growing in 2003, profit margins have declined. He said the fundamentals of the industry are strong, with a sophisticated infrastructure and a highly educated workforce, and some growth is expected this year.
Paton said the industry's goals include high-technology job creation, an increased share of North American capital spending for Canada, and emissions reduction and other continuing commitments to the environment. The industry faces other issues as well, he said. These include access to abundant feedstock supplies, such as ethane; slow growth, with a major constraint being the supply and pricing of electricity and natural gas; global competition; and government regulation, particularly at the microeconomic level.
Paton said there have been no improvements in plans by the federal government in Ottawa to implement the Kyoto Protocol on Climate Change. "The government is still proceeding with an agenda that will hurt industry. There is no plan and still a great deal of work to be done," Paton said.
"I don't see much recognition at the federal level of the importance of the resource industry. We need a federal government that actually thinks about energy policy," Paton added.
Recovery mode
Gary Adams, president of Houston-based Chemical Market Associates Inc., said the industry has struggled through 7 years of diminishing returns and weak earnings and is now in recovery mode. He said global demand now is robust for plastic products, with annual demand increases of 5-5.5% and strong absorption of new capacity. He said average gross operating profits in first quarter were 30% higher than the same period in 2003.
Adams said he sees a strong, broad-based recovery and that he will be even more optimistic if there is some slippage in planned Middle East petrochemical projects and more bearish if there is a high gas-oil ratio.
"A global recovery is now under way, and we are undergoing changes in the market structure, which will define the recovery dynamics," Adams said.