Asia's growing pains

At the 8th Annual Financial Times Petrochemicals Conference, held in London at the end of November, Tony Rodgers, vice president of the China Britain Trade Group asked a provocative question: `Does Asia represent a new Golden Age or is it an accident waiting to happen?'

Growth in the Asian chemical industries in the five years to 1995 has been remarkable and for the next five years it is forecast to keep growing, albeit at a lower rate. But some industrial insiders fear the region might become a victim of its own success as regional demand for raw materials, notably ethylene, outstrips internal supply.

This situation, which is expected to develop in China in particular during 1997-8, will mean Asia will have to import ethylene from surpluses expected at the same time in the US, the Middle East and Europe (see below), with depressing consequences for local prices.

Japan's Ministry of International Trade and Industry reports that demand in Asia (the countries between India and Japan inclusively) for petrochemical products, again in terms of ethylene, grew at 15 per cent pa for the five years to 1995. Between 1996 and 2000 demand will slow to 9.5 per cent pa, which is still twice the world average. In 2000, Asian demand for ethylene is forecast to be 23m tonnes or one quarter of total world demand. China's ethylene demand is set to exceed that of Japan by 30 per cent.

`Since the end of 1995 we have seen a slowdown in exports from these countries, although still at a level that Europeans would find acceptable,' Rodgers said.

Offering a detailed explanation of recent goings on and likely developments in Asian petrochemicals, Hiromasa Yonekura, managing director of Sumitomo Chemical, Tokyo, told the meeting: `Asia's supply of ethylene in the five years to 1995 grew at 13 per cent pa to 12.6m tonnes. Over the next five years it will grow at 10.3 per cent and by 2000, ethylene availability will total 21m tonnes; 20 per cent of world capacity.'

Again, the region is demonstrating dramatic growth in manufacturing - but not enough, it would appear, to keep pace with its own prodigious consumption.

`In 1995, the region was short of ethylene by 5m tonnes,' Yonekura continued. `This shortage is forecast to drop to 4m tonnes in 1998 but rise again to 5.3m tonnes by 2000. The insufficiency will be due mainly to under supply in China, which alone is likely to require an extra 4m tonnes in 2000.'

At the beginning of its most recent five-year economic plan, China pledged to spend $64bn on its chemical industries, but the projects due to be completed by 2000 will only have a `debottlenecking' effect. Large scale plants, based on foreign investment, will only be implemented after 2001. Neighbouring Taiwan will also be under-supplied with ethylene.

Korea may offer a solution with its over capacity, believed to range from 600k tonnes in 1995 to 200k tonnes in 2000. In Korea, expansion projects by LG Petrochemical and Hanwha are both proceeding with 400k tonne plants, as is Yukong with a 500k tonne plant.

`We have heard with great interest about the formation of a private council at the Korean Petrochemical Industry Association, which has reportedly been given the task of co-ordinating new projects. Korea could have as much as 1.5m tonnes spare ethylene capacity in 2000,' said Yonekura.

Yonekura sounded a note of caution about Asia's imbalance of ethylene consumption and production: `My colleagues and I feel gravely concerned about a possible petrochemicals setback in 1997-8. Our concern has been aroused not merely by the forecast of shortages but by other possibilities.

`Currently China continues its economic growth under its traditional socialist system. But, as we experienced in the recent past, even a small change in its taxation system and financial policy would cause severe disruptions in the petrochemical marketplace. We only pray they will not happen for the sake of the rest of the region.

`If Korea turns out to have 1.3m tonnes more supply capacity by 1999, Asia's shortage will drop to 2.7m tonnes which suggests that the recession we foresee in 1997-8 may stay well into the year 2000.'