Top Ten Trends in the Petrochemical Industry in 2011
Reference Code: GBICH0037MR Publication Date: December 2010
Petrochemicals capacity Petrochemicals Capacity Will Continue to Migrate to Low-Cost Locations
will continue to migrate to The North American petrochemical industry has traditionally held the number one position in global
Asia-Pacific and Middle petrochemical production as well as exports. The North American petrochemical industry has gone
East. through several phases in its lifecycle, starting from its initial growth and capacity expansions to a
stage of reduced marginal returns that led to it dealing with a possible slump. The recent slowdown
in the North American petrochemical industry has been brought about by the increase in
competition from price-competitive producers in the Middle East and Asia. The opportunities for US
commodity plastic exports, for instance, have reduced. This is because a large volume of Middle
East plastic export capacity with a significant cost advantage is displacing other exporters in China,
the US, Korea and Japan. Another major reason is the resource constraints and high feedstock
prices in North America. The rising feedstock prices are forcing many North American
petrochemical producers to reassess their profit margins in comparison to that of global players.
The capacity additions in the global petrochemical industry are increasingly favoring Asia-Pacific
and Middle Eastern locations. The major reason for this shift is the economies of production in
these regions. The Middle East has an unparalleled feedstock advantage and Asia-Pacific
countries like China and India offer very low labor costs compared to North American and
European countries.
Coal Will Grow as a Key Feedstock for Petrochemicals Production
The major feedstock for petrochemicals production has historically been naphtha and natural gas.
Coal and Liquefied Petroleum Gas (LPG) is also used in the production of petrochemicals.
However, the use of coal as a feedstock for petrochemicals is becoming popular exceptionally
quickly in China. There are two main drivers behind the push for more coal-to-gas projects in
China. One is the soaring demand for gas due to urbanization and environmental concerns, and
the other reason is that China has plenty of coal, while oil and gas are in short supply. China is the
biggest producers of many petrochemicals in the world. The increasing use of coal feedstock in
China is continuously increasing the share of coal-based petrochemicals production globally.
China has, in the past few years, focused on developing coal-based liquid fuels as raw materials in
order to reduce its dependency on imported oil. With rising crude oil prices the Chinese
government has been eager to find ways to reduce oil imports. China has huge reserves of coal
and is the largest producer of coke in the world. Coke is produced by three types of producers in
China: captive coke production plants of iron-steel makers, coke plants of chemical producers, and
dedicated coke producers. The country has around 5,000 producers of coke with nearly 800 of
them having a large capacity. Due to the availability of low cost coal in the country, it had been
easy for many petrochemical manufacturers in the country to adopt coal-based raw materials.
China Will Lead the Demand Growth of Petrochemicals Globally
China has emerged as the biggest petrochemical market in the world. Petrochemical demand
growth is closely associated with the economic growth of a country, and China is the fastest
growing economy in the world. The GDP of China is growing at a rate much higher than that of
most other economies of the world. The country has successfully maintained its 8% growth despite
the impact of the global financial slowdown, while most large economies in the world have
witnessed a downturn. With a growing economy, rising per capita income in the country also helps
the petrochemical market to grow. Demand for petrochemicals in China is also rising, with growth in
the infrastructure and construction industry, packaging industry, textile industry, automotive
industry, the consumer goods and electronics markets, and many other industries which are major
markets for petrochemicals.
The rapidly growing packaging industry of China plays an important role in the growth of plastic
processing industry and the demand for petrochemicals in the country. The contribution of the
construction industry to China’s GDP also continues to grow. The growing infrastructure in China is
strongly driving the demand for petrochemicals. The strongest growth was observed in the market
for Polyvinyl Chloride (PVC), which is a very important chemical in the construction sector, used
largely for making pipes, window frames and sidings. The increasing demand for PVC also, in turn,
Top Ten Trends in the Petrochemical Industry in 2011 GBICH0037MR / Published DEC 2010
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drives the demand for Vinyl Chloride Monomer (VCM) and Ethylene Dichloride (EDC) in the value
chain.
Packaging Industry Will Contribute to Global Demand Growth for Major Petrochemicals
With the growing emphasis on the look and appeal of the products, the packaging industry has
grown rapidly in the last decade. Producers across different industries have grown keen on
enhancing the packaging of their products. The packaging industry is scaling new heights, not only
in terms of revenue growth, but also in devising new technologies, designs and aesthetically
enhanced packaging solutions. The plastic packaging industry is the leading end-use market for
many petrochemicals in the world.
The global plastics packaging industry is large and growing strongly. The major force driving the
consistent growth of the plastics packaging industry is the simultaneous growth in the industries
which consumes plastic packaging products. As the different market needs grow, the packaging
needs of their products grow as well. Of these packaging needs, a few have been particularly
popular, such as improved barrier properties. This growth trend, combined with current consumer
life-styles and a growing demand for ready-to-eat packaged products, have resulted in a surge of
demand in the packaging industry.
Feedstock Advantage Will Encourage Growth in the Downstream Petrochemical Industry in
the Middle East
The Middle East is witnessing rapid growth in its petrochemical industry, which is benefiting from
the availability of its vast oil and gas reserves. The region has about 67% of the world’s oil reserves
and 45% of the world’s natural gas reserves. These abundant resources have provided the Middle
East petrochemical industry with feedstock and energy at much lower prices than in other regions
of the world. The feedstock cost of the Middle East producers for most petrochemicals is almost
one fifth the feedstock cost available to producers in Asia-Pacific and Europe. Nationalized
upstream oil and gas production allows downstream petrochemical producers to obtain gas
streams at highly discounted prices.
Middle Eastern governments have been encouraging petrochemical producers to diversify their
derivatives portfolio to capture the complete petrochemical value chain. The governments hope that
by producing a broader range of petrochemicals, the downstream manufacturing industries will
similarly broaden and this will create more employment for the local population. The Saudi Arabian
government is also supporting new investments downstream of the basic cracker derivatives, in an
attempt to diversify the economy and create more jobs.
The Increasing Crude Oil Prices Will Lead to Rise in Petrochemical Prices
Typically, petrochemical prices are determined by adding the production costs of producers to the
margin sustained by them. Production costs are heavily influenced by the raw material costs and
the prices of the majority of petrochemical feedstock directly track the crude oil price trend. As a
result, the price of crude oil is of critical importance to petrochemical producers. The price of crude
oil, thus, heavily influences the raw material costs of the production of petrochemicals. The price of
crude oil and the growth rate of the global economy potentially have the greatest influence on the
future performance of the petrochemical industry. Crude oil prices are expected to continuously
grow in the coming years. This will lead to a steady rise in the prices of petrochemicals.
Growing Carbon Emissions and Tightening Regulations Restricts the Industry Growth
The global petrochemical industry contributes severely to air pollution. Petrochemical plants pose a
variety of environmental threats due to greenhouse gas emissions, disposal of wastes, health
hazards and the risk of catastrophic accidents. The major air pollutants produced by the
petrochemical industry are smoke, particulate matter, hydrocarbons, oxides of sulfur and nitrogen,
carbon monoxide, and malodorous emissions. They may arise from storage areas, individual
processes, operations, leakage and the use of fuel for production and the refinery’s own heat and
power.
With the growth in production of petrochemicals, the greenhouse gas emissions produced by the
industry are growing too. Carbon dioxide gas emissions have a very high correlation of 99.7% with
the global petrochemicals production.
Top Ten Trends in the Petrochemical Industry in 2011 GBICH0037MR / Published DEC 2010
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North American and Western European Petrochemical Demand Will Continue to Lag
The North American and Western European demand for petrochemicals is witnessing a slowdown.
Petrochemicals consumption is generally a function of GDP and the economies in the developed
regions of the world have faltered in the recent past. The impact of economic downturn has been
the greatest in the US and Western Europe. Many industries, such as the construction industry and
automotive industry, have suffered a significant downturn in these countries. Overall consumer
spending was also affected. As a result, the demand for petrochemicals in major end-use markets
declined. The collapse in petrochemical demand and a loss of business confidence also triggered
industry wide de-stocking, and drastic cutbacks in petrochemical production in North America.
The reason behind the slow recovery of petrochemicals demand is the maturity of the market in
developed countries compared to other countries. The demand for petrochemicals in developed
countries is already close to saturation level. The per capita consumption of petrochemicals in
these countries is already very high compared to other countries, leaving very little scope for further
penetration or differentiation in the market. The sluggish demand, together with economic
constraints and increasing competition, has recently compelled the producers in North America to
reduce their petrochemical production to enhance capacity utilization and to restore profitability.
The Petrochemical Industry in North America and Western Europe is Expected to Move
Towards Consolidation
The petrochemical producers in North America and Western Europe are facing difficulties in
enhancing their profitability. With limited supply and high prices for feedstock, it has become
difficult to improve competitiveness against the producers of Asia-Pacific and the Middle East, who
have the advantage of lower feedstock prices and cheaper labor. North America and Western
Europe have suffered a greater impact in the global economic downturn than other regions. This
has led to a slowdown in various industries which consume petrochemical products, in turn,
degrading the profit margins of the petrochemical industry. Also, the demand for petrochemicals in
the countries of these developed regions has reached a saturation level.
Due to the saturated markets and low competitiveness facing the producers in North America and
Western Europe, a consolidation trend can be foreseen in the petrochemical industry in these
regions. Relatively smaller companies are expected to be slowly acquired by the bigger ones in the
long term. This indicates that the number of mergers and acquisitions are expected to grow in
North America and Western Europe.
Increasing Capacity Will Lead to Enhanced Competitiveness of Asian Companies
Asia-Pacific’s petrochemical companies are gradually proving to be more profitable than their
American or European counterparts. Rapidly growing domestic demand, the availability of cheap
labor and proximity to the oil-source countries of the Middle East have helped improve the profit
margins of Asia-Pacific petrochemical producers. The export market of these petrochemical
producers is also expanding rapidly. The Asia-Pacific petrochemical industry is witnessing rapid
expansion in Asia-Pacific. In order to increase their global market share, the large petrochemical
producers of the region are focusing on building capacity. Some producers are investing in new
facilities while some are investing in capacity addition to existing facilities.
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1 Table of Contents
1 Table of Contents ........................................................................................................................ 4
1.1 List of Tables..................................................................................................................... 6
1.2 List of Figures ................................................................................................................... 7
2 Introduction.................................................................................................................................. 8
2.1 GBI Report Coverage ....................................................................................................... 8
3 Petrochemicals Capacity Will Continue to Migrate to Low-Cost Locations.................................. 9
3.1 Cheap Labour and Rapidly Growing Domestic Markets are Driving the Capacity
Additions in Asia-Pacific.................................................................................................. 12
3.2 Availability of Cheap and Abundant Feedstock Forces Capacity Additions in the Middle
East................................................................................................................................. 14
4 Coal Will Grow as a Key Feedstock for Petrochemicals Production.......................................... 15
4.1 VCM Capacity Based on Coal Feedstock is Expected to Increase in China................... 18
4.2 Interest in Coal Gasification Process for Petrochemicals Production Will Increase ........ 20
4.3 Increasing Use of Coal Will Continue to Raise Environmental Concerns ....................... 20
5 China Will Lead the Demand Growth of Petrochemicals Globally ............................................. 21
5.1 The Giant Plastic Processing and Packaging Industry of China is the Major Force Driving
the Petrochemicals Demand ........................................................................................... 24
5.2 Rapidly Growing Infrastructure and Construction Industry of China Will Lead the Market
to Grow ........................................................................................................................... 26
5.3 The Robust Automotive Industry of China is Expected to Boost Growing Demand in the
Country ........................................................................................................................... 28
5.4 Huge Textile Industry of China Will Help Growth in Consumption .................................. 30
6 Packaging Industry Will Contribute to Demand Growth for Major Petrochemicals Globally ...... 31
6.1 Major Characteristics of Plastic Packaging Which Will Drive Growth.............................. 33
6.1.1 Convenience............................................................................................................ 33
6.1.2 Barrier Protection and Cost-effectiveness ............................................................... 33
6.1.3 Differentiation Through Design ................................................................................ 34
6.1.4 Smart Packaging ..................................................................................................... 34
6.2 Beverage and Food Packaging Continues to be the Major Market for Petrochemicals in
the Global Packaging Industry ........................................................................................ 34
7 Feedstock Advantage Will Encourage the Growth in Downstream Petrochemical Industry in
Middle East................................................................................................................................ 36
7.1 Feedstock Advantage Will Lead the Growth in Petrochemical Capacity in the Region... 36
7.2 Low-priced Raw Materials Will Help in the Diversification Strategy of the Middle East
Petrochemical Industry ................................................................................................... 41
7.3 Key Upcoming Trends in Middle Eastern Petrochemical Industry................................... 41
7.3.1 Proximity to Growing Asian Markets Will Continue to Drive Middle East
Petrochemical Exports............................................................................................. 41
7.3.2 Constrained Supply of Gas-based Feedstock in the Region May Impact the Industry
Growth..................................................................................................................... 42
7.3.3 Delayed Execution of Projects Might Hinder Fast Industry Growth ......................... 42
8 The Increasing Crude Oil Prices Will Lead to Rise in Petrochemical Prices.............................. 43
8.1 The Price of Aromatics is Expected to Rise by Around 2.8% in 2011 ............................. 44
8.2 The Olefins Price is Expected to Rise by Around 6.2% in 2011...................................... 46
9 Growing Carbon Emissions and Tightening Regulations Will Restrict the Industry Growth....... 48
9.1 Regulatory Measures ...................................................................................................... 54
9.1.1 Regulatory Measures in Europe .............................................................................. 54
9.1.2 Regulatory Measures in the US............................................................................... 55
9.1.3 Regulatory Measures in China ................................................................................ 57
10 North American and Western European Petrochemical Demand Will Continue to Lag............. 59
10.1 The Share of North America and Europe in Global Petrochemical Demand Will Reduce...
................................................................................................................................ 60
11 Petrochemical Industry in North America and Western Europe is Expected to Move Towards
Consolidation............................................................................................................................. 63
11.1 The Number of Acquisition Deals is Expected to Rise in North America and Europe ..... 64
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11.1.1 Inpex Announces Secondary Offering for $6.6 Billion ............................................. 68
11.1.2 Inergy Holdings to Merge With Inergy ..................................................................... 68
11.1.3 Sinopec Issues Convertible Bonds for $2.9 Billion .................................................. 69
11.1.4 LyondellBasell Completes Private Placement of 8% Senior Notes Due 2017 for
$2.75 Billion ............................................................................................................. 69
11.1.5 Lyondell Chemical Prices Private Placement of Senior Secured Notes for $2.75
Billion....................................................................................................................... 69
11.1.6 SABIC Announces Private Placement of $2.6 Billion .............................................. 70
11.1.7 Hyundai Heavy Industries to Acquire Additional 70% Stake in Hyundai Oilbank..... 70
11.1.8 BP Files Public Offering of Notes for around $2 Billion............................................ 70
11.1.9 PEMEX Completes Private Placement of 5.5% Bonds Due 2021 for $2,000m ....... 71
11.1.10 The Dow Chemical Issues 4.25% Senior Unsecured Notes Due 2020 for $1.75
Billion....................................................................................................................... 71
12 Increasing Capacity Will Lead to Enhanced Competitiveness of Asian Companies .................. 72
12.1 Economic and Feedstock Difficulties are Expected to Impact the Profitability of Producers
in North America and Europe.......................................................................................... 72
12.2 The Growing Investments and Expansions Will Lead to Increased Competitiveness of the
Asian Petrochemical Producers ...................................................................................... 74
13 Appendix ................................................................................................................................... 76
13.1 Abbreviations .................................................................................................................. 76
13.2 Methodology ................................................................................................................... 78
13.2.1 Coverage ................................................................................................................. 78
13.2.2 Secondary Research ............................................................................................... 78
13.2.3 Primary Research.................................................................................................... 78
13.2.4 Expert Panel Validation ........................................................................................... 79
13.3 Contact Us ...................................................................................................................... 79
13.4 About GBI Research ....................................................................................................... 79
13.5 Disclaimer ....................................................................................................................... 79
Top Ten Trends in the Petrochemical Industry in 2011 GBICH0037MR / Published DEC 2010
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1.1 List of Tables
Table 1: Ethylene and its Major Derivatives, Capacity Additions by Region, Million Tons, 2005-
2015 ...............................................................................................................................10
Table 2: Major Polymers, Capacity Additions by Region, Million Tons, 2005-2015 ..................... 11
Table 3: PVC, Global, Capacity With Coal as a Feedstock, Million Tons, 2000-2020.................. 17
Table 4: PVC Production, China, Capacity by Feedstock, Million Tons Per Year, 2000-2020..... 19
Table 5: Major Polymers, China, Demand, Million Tons, 2000-2020 ........................................... 23
Table 6: Major Olefins, China, Demand, Million Tons, 2000-2020 ............................................... 25
Table 7: PVC, China, Demand, Million Tons, %, 2000-2020........................................................ 27
Table 8: SBR, China, Demand, Million Tons, %, 2000-2020........................................................ 29
Table 9: Major Polymers, Global, Demand by End Use, Million Tons, 2000-2020....................... 32
Table 10: Major Polymers, Global, Demand Share by End Use, %, 2000-2020 ............................ 33
Table 11: Ethylene, Prices, $/Ton, 2000-2020 ............................................................................... 38
Table 12: Propylene, Prices, $/Ton, 2000-2020............................................................................. 40
Table 13: Basic Aromatics, Global, Prices, $/Ton, 2000-2020 ....................................................... 45
Table 14: Basic Olefins, Global, Prices, $/Ton, 2000-2020............................................................ 47
Table 15: Petrochemical Production and CO 2 Emissions, Global, Million Tons, 2000-2018 ......... 49
Table 16: Major Petrochemical Contributors to Carbon Emissions, Global, %, 2010..................... 51
Table 17: CO 2 Emissions by Region, Million Tons, 2000-2018 ..................................................... 52
Table 18: CO 2 Emissions by Region, Share, %, 2010 and 2015 ................................................... 53
Table 19: Major Polymers, North America, Europe, Rest of the World, Demand Million Tons, 2000-
2020 ...............................................................................................................................61
Table 20: Major Polymers, North America, Europe, Rest of the World, Demand Share , %, 2010
and 2015 ........................................................................................................................ 62
Table 21: Deals in Petrochemical Industry by Type, Global, Share, %, 2010 ................................ 64
Table 22: Petrochemical Deals by Region, %, 2009 and 2010 ...................................................... 66
Table 23: Top 10 Deals in Petrochemical Industry, Global, 2010 .................................................. 67
Table 24: Asian vs. Global Petrochemical Companies, Share by Petrochemical Capacity , %,
2005-2015 ...................................................................................................................... 74
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1.2 List of Figures
Figure 1: Ethylene and its Major Derivatives, Capacity Additions by Region, Million Tons, 2005-
2015 ...............................................................................................................................10
Figure 2: Major Polymers, Capacity Additions by Region, Million Tons, 2005-2015 ..................... 11
Figure 3: Coal to Petrochemicals, Value Chain............................................................................. 15
Figure 4: PVC, Global, Capacity Share With Coal as a Feedstock, %, 2000-2020 ....................... 16