Forthcoming Price Downturn of Petrochemical Products


According to the projection made in the latest report completed
by the Price Supervision Center of the National Development and
Reform Commission, prices of petrochemical products in China's
market will be still maintained at a relatively high level in
2006, but there will be a downturn compared with 2005. Due to
the impact from downstream industrial chains and relevant
substitutes, of course, the price trend of different products
will not be the same.
   The great fluctuation of the crude oil price in the
international market is the main reason for the price change of
petrochemical products in the domestic market. Crude oil is a
major raw material for petrochemical products and the great
fluctuation of its price will surely lead to a cost change of
petrochemical products and affect their prices. The price rise
of cis-1,4-polybutadiene rubber is mainly stimulated by the
price rise of natural rubber.
   The capacity surplus of some products has resulted in a price
reduction. The capacity of PVC in China has kept increasing at
an annual rate of over 50% in the past two years and the number
of producers has also increased from 70 to 90. The total capacity
is more than 9.8 million t/a today and is expected to reach 11.5
million t/a at the end of 2006. The consumption was however only
around 8.0 million tons in 2005. The capacity surplus of PVC will
surely trigger a fierce price competition and lead to a price
reduction.
   The macro economic situation both at home and abroad will
maintain a sound trend of development in 2006. The demand of
petrochemical products will be still brisk and their prices will
be still kept at a high level. As the crude oil price is expected
to come down, however, prices of petrochemical products will
have a downturn.
   The sound development of the economy both in the world and
in China in 2006 will provide an extensive market space for
chemical products. According to the projection made by relevant
organizations, the demand of the 5 main kinds of general-purpose
resins in China will have a relatively high growth in the next
5 years. The demand growth of PE, PP and PVC will reach around
8%. A firm support will therefore be offered to prices of
petrochemical products. As the crude oil price in the
international market is expected to come down in 2006, however,
the cost pressure of petrochemical products will be lightened
and there will therefore be a possibility for a reduction in
ex-factory prices of petrochemical products. Needless to say,
the crude oil price will still be at the high level in 2006 and
the price reduction margin for petrochemical products will not
be big.
   Besides, as prices of industrial goods in China tend to be
stable, it is hard for prices of petrochemical products to have
a drastic rise. Statistics show that the growth in ex-factory
prices of industrial goods from January to November 2005 made
a monthly drop compared with the same period of the previous year.
The growth in November 2005 was 3.2%, 1.9 percentage points lower
than the average growth in the first 11 months of 2005 and being
the lowest point since 2004. The growth in purchase prices of
raw materials, fuel and power has also decreased considerably.
It is therefore expected that prices of industrial goods will
remain stable in 2006 and it is also hard for prices of
petrochemical products to have a drastic rise.
    The price trend of different petrochemical products will be
somewhat different because of the different impact from
downstream industrial chains and relevant substitutes. Prices
of products with capacity surplus and oversupply may drop
considerably whereas prices of products with great demand and
supply deficit may continue to rise.