CHINA'S IMPORT CURBS DISAPPOINT ASIA'S PETROCHEMICAL FIRMS

CHINA'S IMPORT CURBS DISAPPOINT ASIA'S PETROCHEMICAL FIRMS

Chinese petrochemical imports would be curbed for the rest of the year by domestic production, spelling disappointment for Asian producers hoping for Chinese demand to boost international prices, industry sources said on Thursday.

Demand might increase but local production was sufficient to meet that demand, Chinese petrochemical sources said."We expect a few new plants to come onstream in the second half of this year," said a senior official of state-owned China Petrochemical Corp. (Sinopec).

"This will add to our production of polyethylene, polystyrene and polypropylene (plastics) to meet the projected increase in demand," he said.

Sinopec data showed an increase in chemical imports of 24 percent from last year to 2.5 million tons for the first half of this year. Domestic production of plastics was also up by 24 percent over the same period to 1.25 million tons.

Chinese chemical imports comprise mainly plastics and synthetic fibers.

"We do not expect imports to reach those high levels again for the rest of the year," the Sinopec source said.

"Demand reached its peak in early May this year. Despite high imports and local supplies, domestic prices were their highest at 11,000 renminbi (US$1,323) per ton for polypropylene and at 11,800 renminbi ($1,421) per ton for polyethylene, almost double the prices registered in the latter half of last year," said another Sinopec source.

In late May, international market prices fell drastically when China, in an attempt to stem inflationary pressures on domestic prices, decided to clamp down on its chemical imports.

Domestic prices have eased since then but the rate of the fall has not been as high as that of international prices.

"While international market prices have fallen by 20 percent to 30 percent in June, domestic prices in China eased by 10 percent," the Sinopec source said.

Chinese ethylene production next year is expected to be up by 600,000 tons from the current 2.27 million tons.

Demand for ethylene, at 4 million tons last year, is escalating at between 12 percent and 15 percent per year while supply will rise only by 8 percent.

"Chinese imports of ethylene, a feedstock for the production of polystyrene and polyethylene, will have to increase in 1996, but I'm not optimistic about its demand for this year," a Tokyo-based analyst with Union Bank of Switzerland said.

Prices in the near term are unlikely to recover to levels seen in May, Chinese sources said.

Asian chemical producers, hoping international prices would be boosted with the re-entry of Chinese demand, will be disappointed.

Faced with falling demand, new capacities and rising inventories, producers in South Korea, Japan and Taiwan started cutting operating rates of ethylene crackers by 10 percent to 20 percent last month.