Chemical suppliers in mainland China face unprecedented challenges

Hitherto unknown, as China continues to fight the COVID-19 epidemic this year and in the future, Chinese mainland chemical suppliers are facing unprecedented challenges and opportunities.

On Friday, at a China Forum held by IHS Markit during the 2021 world petrochemical Conference (WPC), Mr. Ye Ming, head of marketing and supply chain at Wanhua chemical group (Yantai, China), said the company was optimistic about the prospects of the chemical industry. Clearly, the pandemic has generated repressed demand, which will accelerate demand for commercial chemicals. The investment in upstream supply is insufficient due to the poor return, which makes the downstream demand difficult to meet. He added that this would drive future investment and generate demand for basic chemicals.

He said the novel coronavirus pneumonia and Sino US trade conflicts led chemical suppliers to reconsider the international supply chain. This will help offset the reality of risk and provide a certain degree of security to deal with geopolitical tensions. It is clear that this will also create opportunities for the growth of global chemicals.

Wanhua’s business units are polyurethane, performance chemicals and materials, and petrochemical industry.

Xu Yating, a senior economist at IHS Markit, said at the forum that China’s GDP will grow by 7.8% in 2021. He said that in 2020, the growth momentum may shift from industrial production and investment to consumption and services.

Elastic China Chemical Industry

Tanvier Rahman, head of chemicals / Asia and oil and gas / Southeast Asia at HSBC, said China was relatively unaffected by the epidemic as a result of China’s large population, rising wealth levels and potential demand to allow companies to thrive.

Rahman said China’s fundamentals remain strong and China is recognized as a key destination for growth for leading international chemical suppliers. China is a key manufacturing center and needs to transform commodities and intermediate chemicals into higher value manufactured goods for export, he said.

Mr Rahman said China’s demand was hurt by the covid-19, but it recovered faster than other major economies. This has been supported by the strength of domestic chemical industry, and domestic consumption has alleviated the decline of export demand to some extent. “In addition, any supply chain that is transferred outside China has limitations,” he said.

Rahman pointed out that Chinese companies are expanding their scale to meet domestic demand and lead western counterparts in new growth areas such as electric vehicles and battery chemicals, using domestic technologies and capabilities. “Economic growth is supported by many factors, including national policy, lower capital costs, large and competent labor, and financing from banks and provinces,” he said

Rahman said China remained resilient during the outbreak despite weak export markets and domestic demand. “If we look at ebdita, a top listed company, we will find that there will be no decline in 2020 and there will still be very impressive gains,” he said This is supported by local market demand. Rahman said some companies are trying to grow by supplying complex chemicals to domestic and international markets. Rahman pointed out that China is a pioneer in the field of battery materials for electric vehicles.

Domestic chemical suppliers are developing the cutting-edge technologies in the new generation of chemical industry. “Capital spending has increased significantly to access technology, in part to make complex products,” Rahman said Some of them have acquired technology through joint ventures, he said.

The surge in private sector

Rahman said all areas of China’s chemical industry have been generally open to all domestic enterprises. With the relaxation of capital intensive industries such as refining and petrochemical, and the access to oil import, the presence of private enterprises (POE) and SOEs has been expanded together. Despite the entry of several private enterprises, many areas remain the priority of state-owned enterprises, which plan to increase new capacity. Rahman said government policy to encourage investment led to a surge in state-owned and private enterprises in the refining and petrochemical industries.

Rahman noted that the number of Poe is much larger now and the way they take advantage of the opportunities for growth in the new generation of chemicals is impressive. “Many companies have developed their own technology and are growing,” he said Several state-owned enterprises are also developing plans to ensure they remain relevant in the new chemical industry, Rahman said.