4 BULKDISTRIBUTOR China May / June 2016
4 BULKDISTRIBUTOR China May / June 2016
China is still central to chemicals markets
The global chemical industry still looks likely to have China at its core . Despite the potential in other emerging market countries like India and Brazil , unpredictable legal and tax regimes there will continue to leave investors wary of committing huge capital sums in those countries , according to consultancy KPMG . The firm says western chemical companies will continue to enjoy a large market to sell products in China despite the country ’ s economic shift towards more service- and consumer-based sectors . China ’ s economy is certainly transitioning from one based on heavy industry and exports , to a focus on services and innovation . But while headlines might show economic growth stalling , the vast population of China continues to grow at healthy rates , and most importantly , the disposable income of the average Chinese citizen has increased . “ China is still growing at about 7 percent a year ,” said Paul Harnick , KPMG ’ s UK head of chemicals and global COO for chemicals and performance technologies . “ Where else in the world are you going to get 7 percent growth ?” Chinese consumers are the among world ’ s biggest savers , hoarding over 40 percent of their income each year , but they also want bigger cars , better furniture and generally consume more . As a result , China ’ s domestic oil consumption is forecast to continue rising at an average of 3 percent a year until the end of the decade .
Western chemical companies will continue a large market in China despite the shift towards more service- and consumer-based sectors
To meet this increasing demand , Chinese companies are continuing to invest in greenfield refineries and refinery upgrades , cementing their position as the largest refiner in Asia . Over 30 new refinery projects have been announced and a number of refinery expansions have commenced , replacing a number of inefficient refining units which are being shut down . With this investment , refinery utilisation has steadily increased , with China ’ s total refining capacity estimated at 16 million bpd . This all has the potential to generate greater demand for refined product logistics . Earlier this year , Ellen Ruhotas , of Ratio Group and one of the best respected analysts of crude oil and refined product economics , outlined the transformation of China ’ s refining sector at the annual Platts European Oil Storage conference in Amsterdam . The interesting change in China is in the product mix , she said . Diesel still dominates the refined products market , accounting for 40 percent of all production , but with the structural slowdown in mining , heavy industry and construction , consumption of diesel has declined significantly . China is now a net exporter of gasoil / diesel and is looking to continue along this path . Growth in the car population , an increase in the size of cars purchased , and the distance the average Chinese driver now travels , have all contributed to continued growth in gasoline sales . The test for Chinese refiners is how willing and able they are to adjust their product mix to meet this evolving demand . The country has a growing network of independent refiners , known as ‘ teapots ’, which , despite the term , account for over 20 percent of China ’ s refining capacity . These privately owned refineries concentrated along the north-east coast of the country , grew from humble beginnings . As the Chinese National Oil Companies had a monopoly on importing crude oil , the teapots access to feedstock was restricted . Historically , these refineries processed whatever they could get their hands on , which has seen them evolve into flexible refiners with cheaper operating costs than their much larger competitors , and significant contributors to the local economy . These teapot refiners have been consistently pressuring Beijing to allow them to import larger amounts of crude oil directly . Reluctant to inflict local economic damage , Beijing granted direct import rights in December 2015 . Overnight , teapot refineries , which were operating at 35 percent utilisation due to restricted feedstocks , moved quickly to source international crude oil directly . Refinery utilisation is expected to increase to 55 percent of capacity in the near term and some analysts suggest that the teapots alone could generate demand for 1.1 million bpd of crude oil . The teapot refineries have traditionally been reliant on ‘ dirty ’ fuel oil , often blended in Singapore , as a feedstock , Ruhotas explained .
Freeing up large parts of China ’ s intermodal system would yield big benefits for the country ’ s transport network