What will be the future of China’s chemical industry in the coming years?

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At present, most chemical manufacturing companies are still achieving very good profits； Market prices are not expected to drop as low as they were in the first quarter of last year in the short term, but it is certain that China’s chemical market will experience severe fluctuations this year. During the restructuring over the past five years, a large amount of outdated production capacity in the chemical industry has been completely phased out. Chinese chemical producers have begun to abandon the low-price marketing strategy aimed at gaining market share through volume, as well as the approach of focusing on low-cost exports to expand their market presence abroad. As basic raw materials for the upstream industry, small and medium-sized enterprises can hardly be found anymore, as they no longer have any room to survive. The rapidly increasing concentration in this industry allows those influential players to raise prices simply by exchanging glances; pursuing profits has become their primary goal in marketing. Some industry leaders say that the selling price of their products in the market is basically unrelated to the cost; any price that can be set will find buyers as long as it exists. If things continue in this way, what will the Chinese chemical products market look like in three years? Capacity expansion is advancing at a rapid pace in the silicone sector: The period from mid-2017 to the present can be regarded as a boom time for the silicone market, with prices of silicone products soaring. Apart from a slight decline in November last year, prices have remained high almost continuously, and there are still no signs of them slowing down! Faced with extremely high profits, silicone companies are expanding their production capacity. Silicone giants are racing against time to quickly establish a presence in the downstream market. It can be said that the next one or two years will still be a period of expansion for the silicone industry! Ethylene: Production capacity reached 21 million tons in 2016, and an additional 10.5 million tons of ethylene production capacity will be added during 2017–2018. In contrast, the annual demand from the main ethylene downstream industries is unlikely to exceed 10%, and there are even more ethylene and propylene plants under planning or application. Furthermore, many ethylene and propylene plants are equipped with the corresponding downstream polyethylene and polypropylene production facilities, so in three years time both polyethylene and polypropylene will be in a state of severe overproduction. Ethylene oxide: Production capacity exceeded 4.07 million tons in 2016. The high profits at that time led to an average annual growth rate of 140% in production capacity for ethylene oxide during the period 2012–2016. What’s more, an additional 550,000 tons of production capacity was added between 2017 and 2018 ； Faced with such rapid expansion of production capacity, it is absolutely unrealistic to rely on other downstream products such as ethyleneamine and water reducers to drive demand growth. Faced with another wave of aggressive capacity expansion in the field of upstream basic chemical raw materials, there is concern that things might turn into a mess in a few years. Policies are having a severe impact on the chemical industry. Nowadays, when considering projects at all local levels, the first thing asked is the scale of investment required. For example, Terry Gou’s investment in his project in Guangdong amounts to hundreds of billions; **all approval procedures are carried out in order to facilitate this project, and the time from the announcement of the investment plan to the start of construction is so short that it’s hard to believe ； But if your project investment is only in the tens of millions or a hundred million, then just wait patiently; at least the environmental assessment process will be so slow that it will make you question everything. If you have a good project and want to invest tens of millions to build a factory, don’t expect to do so in the economically developed regions of Jiangsu and Zhejiang – obtaining land and getting project approvals is essentially an impossible task. I’m really worried that in three to five years, those who will remain competitive in China’s chemical industry will be those who rely on brute force, while specialized chemicals and new chemical materials that depend on innovation and technology will become scarce due to the inability to implement such projects. We know that the top chemical companies in the world make money by producing specialty chemicals and new materials, and the environmental impact of manufacturing these products is nowhere near as significant as that of those bulky, heavy-duty devices. Ultimately, it could lead to a strange situation: we expend large amounts of coal and oil, and even rely on substantial imports of natural gas to produce basic chemical raw materials; we are forced to export them at low prices in order to earn meager foreign exchange, only to then import the specialized chemicals and new materials we need at very high prices. If this happens, we will be left speechless. The gap between China’s chemical industry and foreign countries is widening; in the coming years, this gap will continue to increase! One should not assume that China’s chemical industry has reached world-class standards just because it produces tens of millions of tons of crude oil, millions of tons of ethylene/PX, and hundreds of thousands of tons of propylene, polyethylene, and polypropylene. Does scale alone carry any value? Our foreign counterparts aren’t afraid of us using basic chemical raw materials. Those large-scale, high-tech manufacturing facilities require heavy investment, and they inevitably have an impact on the environment. If we import raw materials, we’re forced to buy their catalysts as well during production; thus, they hold us in a tight grip. They purchase our finished products, process them further, and then sell them back to China at a higher value added – how tragic is that? Our real gap lies in high-performance products, downstream products, and new materials. Taking coatings as an example, over 40% of the additives are controlled by foreign companies, all in the mid-to-high-end segment ； We are a major shipbuilding country (one of the top two in the world), and the majority of marine paints are not produced by Chinese companies ； As the world’s largest automobile producer, foreign paint brands essentially dominate the four major automakers. China does indeed invest a lot in research and development. It has the largest network of research institutions at all levels that are not part of enterprises in the world. So what’s the result? Where is the research and development in high-performance products, downstream products, and new materials? As for abroad, new technologies with commercial value are basically developed and owned by companies. Where China’s chemical industry is headed in the coming years is something that deserves careful consideration from each of us in this field!