By OGJ editors
HOUSTON, Feb. 28 -- China can become a major competitor in petrochemicals, says SRI Consulting, Houston, in a recent report.
"A recently built, state-of-the-art petrochemical complex in China can be very competitive against Saudi Arabian producers exporting to China, even though the Saudis have unparalleled feedstock cost advantage," said Ken Zheng, SRI Consulting's senior consultant.
According to the report, which compares costs of petrochemical plant construction and operation in China versus the US, Japan, and Germany, said China's main competitive advantage is low-cost labor.
China now can build chemical plants with local construction and engineering labor, equipment, machinery, and materials, Zheng said.
"As the cost of local sourcing, especially labor cost, is significantly lower than that in the developed countries, a chemical plant built in China can cost one-third less than the same plant on the US Gulf Coast," he said.
But plant construction cost can vary greatly in China, depending on location and ownership, limiting the cost benefits of local sourcing.
Based on 2004 cash flow return on investment (CFROI) basis, a Chinese producer with a recently built petrochemical complex using naphtha feedstock would have achieved a CFROI close to those of ethane-based producers in the US but higher than those of naphtha-based producers in Germany and Japan, the report said.
In China, several world-scale integrated petrochemical complexes are planned and are likely to come on stream in the next few years.
"Once a plant is built and operational, the investment cost becomes sunk cost," Zheng said. "Therefore, a producer with much lower plant investment cost than its peers will have a lower ongoing cost of production and will be more competitive."
Zheng said, "Strong local demand, low-cost plant construction, and low-cost financing appear to be the main drivers behind China's rapid capacity expansion. We believe that the major Chinese producers are poised to become serious players in the global petrochemical industry."