Reportedly, the profits from making petrochemicals across Asia have fallen to their lowest levels in months as the insistent trade conflict amid Washington and Beijing chokes Chinese demand for plastics and chemicals just as waves of new production begins to come on track. The output capacity globally for polyethylene—which is a chief ingredient for plastics used in everything such as piping, toys—is anticipated to surpass demand by 3 million tons by 2020, in comparison to overcapacity of 545,000 Tons in 2019, statistics from US-based commodity consultancy Wood Mackenzie stated.
That came as new production is set to start in South Korea, China, and Malaysia, though the U.S. and the Middle East will sum up for over half of the new volumes. Ashish Chitalia—Principal Analyst at Wood Mackenzie—said, “In the coming 2 Years, the operating prices (of polyethylene units) will be affected as the competence additions are quicker than the demand addition.” Although analysts report that polyethylene profit margins are currently at their narrowest in almost 7 Years, ballooning supplies can take them even lower, putting high-cost manufacturers under critical pressure. The spread amid prices for feedstock naphtha and polyethylene gives an estimate of how much profit petrochemical producers can make.
On a related note, China’s petrochemical expansion can overpower producers in Japan and South Korea. A gigantic surge in China’s production capacity for paraxylene—which is a petrochemical utilized in making bottles and textile fibers—could force top exporters across Japan and South Korea to curb production in the second quarter of 2020. Reportedly, China will add around 10 million tons of paraxylene production capacity from March 2019–March 2020, which is enough for producing 22 Trillion plastic bottles of 500-Milliliter. China imports 60% of its requirement for the chemical to serve polyester demand that has doubled from 2010.