MOSCOW (MRC) -- A massive surge in China’s manufacturing capacity for paraxylene, a petrochemical used to make textile fibers and bottles, could force leading exporters in Japan and South Korea to cut production as early as the second quarter of 2020, said Hydrocarbonprocessing.
China will add about 10 million tones of paraxylene manufacturing capacity from March 2019 to March 2020, according to company reports and officials, that is enough for making 22 trillion 500-milliliter plastic bottles.
The world’s top consumer of paraxylene (PX), China imports 60% of its need for the chemical to feed polyester demand that has more than doubled since 2010. Over half of China’s PX imports come from South Korea and Japan and the new capacity is expected to cut Chinese imports by about 50%.
Without Chinese demand, the profit margins for regional manufacturers such as Japan’s JXTG Holdings Inc (5020.T), South Korea’s Lotte Chemical (011170.KS) and Hyundai Cosmo Petrochemical and domestic producer Dalian Fujia are expected to drop further, likely causing a rollback in output and decline in earnings.
“We will see drastic cutbacks in PX operating rates among many Asian exporters, and potential capacity rationalization in sites where integrated refining-aromatics margins are poor,” said Darryl Xu, principal analyst for Asia chemicals at consultancy Wood Mackenzie.
Private companies are leading China’s latest PX boom through a string of projects often integrated with big oil refineries which make them more cost competitive and flexible.
China’s Hengli Group launched in March a PX plant capable of producing 4.5 million tonne per year (tpy) in the city of Dalian and Zhejiang Petrochemical is slated to start a 4 million tpy plant in Zhoushan late in 2019.
In July, Shandong-based Hongrun Petrochemical began trial runs at its 700,000 tpy plant and China Petroleum and Chemical Corp, or Sinopec (0386.HK), will start a plant in Hainan producing 1 million tpy in the third quarter.
Helen Yang, a researcher at JLC Consultancy, estimated China’s PX imports could fall to 7 million tonnes next year and further to 4 million tonnes in 2021. Imports this year will be 12.6 million tonnes, the first annual decline in over a decade, down from a record 16 million tonnes in 2018.