PP Capacity Expands Rapidly
Sustained growth of consumption

The consumption of PP (polypropylene) in China increased at an
average annual rate of 11% from 2000 to 2005. The brisk market
demand promoted a rapid development of the PP sector. The output
increased from 3.24 million tons in 2000 to 5.23 million tons
in 2005. The PP production, however, still can not meet the
demand and the deficit still has to be bridged by imports. The
import amount increased sharply from 1.64 million tons in 2000
to 3.023 million tons in 2005. China has become a major PP net
importer in the world. The import is mainly made from peripheral
countries and regions. Nearly 30% is from Korea and the rest is
from Taiwan province, Singapore, the United States, Thailand and
Japan in turn.
    The consumption distribution of PP in China started to
change from the end of the 20th century. In the woven product
market, domestic materials hold a leading position. Plastic
woven bags produced from imported materials are mostly for
export and only small amounts are sold in the domestic market.
Although the consumption of PP in this sector is quite large,
the consumption proportion in the total was already reduced from
60% in 2001 to 49% in 2005 and is expected to be further down
to around 45% in 2010. Packing bags with large size, heavy duty,
great strength, static resistance and aging resistance will be
the overall development trend of plastic woven products in
future.
   In PP derivatives, the consumption in fiber products and
injection-molded products is increasing rapidly. In the market
of fiber products, the production of medium and low-grade
products mostly uses domestic materials and materials used in
the production of high-grade polypropylene fiber products such
as fine denier and super fine denier, light-weight non woven
fabrics and reinforcing yarns are mainly imported from abroad.
It is expected that the consumption proportion of PP in fiber
products will increase from 10% in 2005 to 14% in 2010. In the
market of injection-molded products, domestic materials hold
the market of medium and low-end products and imported materials
such as thin wall injection-molded special materials in urgent
market need hold the market of high-end products. The market of
injection-molded products has a huge potential and the
consumption of PP in this sector will increase from 1.48 million
tons in 2005 to 2.52 million tons in 2010.
   Besides, the market of blow-molded container special
materials, high-flow impact-resistant automobile special
materials, BOPP (bi-oriented polypropylene) hot sealing film
and pressure-resistant pipes also has a bright prospect.
   In the general-purpose material market, there is a very
fierce competition between domestic materials and imported
materials. In the special material market, imported materials
have a remarkable advantage. High-grade special materials for
automobile components and household electric appliances are
mostly imported from abroad in the form of processing and
installing imported materials trading. There are high
requirements on the added value and the quality of products and
suppliers are relatively fixed. It is quite difficult for
domestic materials to access to this market. Besides, PP
modified materials also hold a considerable share in the special
material market.   

Diversification of investors

The huge market demand potential has made China a target of PP
giants in the world. To compete for the market with a supply
deficit of around 40%, petrochemical giants such as Shell, BP
and Exxon Mobil have constructed 3 large oil refining integrated
projects in Guangdong province, Shanghai and Fujian province in
collaboration with domestic companies. The total capacity of PP
units matching to these 3 projects is 890 thousand t/a. Except
for the project in Fujian province, the other 2 projects have
already started production. Besides, Formosa Plastics Group is
also constructing a 450 thousand t/a PP unit in Ningbo, Zhejiang
province and production is expected to start in 2007.
   The coming of the foreign capital has broken the monopoly of
the state capital in the PP sector. The ownership form of
investors is becoming more diversified. Some private firms
engaged in the processing of petrochemical downstream products
have rapidly increased their financial strength in recent years
and are expanding to upstream sectors. Dalian Shide Group is one
of the largest PVC (polyvinyl chloride) producers in the world.
The company intends to launch a world-class oil refining
integrated project together with SABIC of Saudi Arabia and a
matching 660 thousand t/a PP unit will be constructed.
   Raw material propylene for PP units in China mainly comes from
byproducts of ethylene units and from refineries. Traditional
propylene production routes can no longer meet the increasing
demand in downstream products such as PP. To bridge the deficit
of propylene resources, other propylene production technologies
such as the olefin conversion process, the
methanol-to-propylene (MTP) process and the propane
dehydrogenation process have already been or are being
commercialized. It is expected that the capacity of propylene
units using these new technologies in the world will be more than
4.0 million t/a in 2008. The emergence of these new propylene
production processes has paved a solid foundation for the
diversification of raw material routes in the PP production and
formed a mode of competition among several different raw
material routes.

Large scale of production

China has more than 90 PP producers, 18 of which with an output
of over 100 thousand tons in 2005 has a total capacity of 3.573
million t/a, accounting for 67.4% of the national total. It is
expected that PP producers with a capacity of 200 thousand t/a
and above will hold a leading position in the market and their
total capacity will account for around 80% of the national total.
   PP units in China are mainly controlled in the hands of
Sinopec and CNPC. The 300 thousand t/a PP project in CNPC Daqing
Petrochemical Company Ltd. put on stream in August 2005 and is
the largest PP unit in China today. (CCR2005, No. 23) The company
is planning to launch a second unit. The 240 thousand t/a PP unit
in CNOOC Shell Petrochemical Co., Ltd. started production at the
beginning of 2006. Quite a few PP projects are being constructed
or planned for construction in China. Except a few units whose
capacity is 200 000 t/a, most units have a capacity of over 300
thousand t/a. The peak of the new-round capacity expansion is
2008-2009. If these projects can all be completed on schedule,
the capacity of PP in China will reach 11.0 million t/a in 2010.
   Stimulated by tariff downturn and RMB appreciation, foreign
companies who have already held a monopoly position in the
high-end market and part of the medium-end market will use their
advantages in geographical location and production cost to
further expand the export of their products to the Chinese market.
After the completion of several large PP units in the Middle East,
low-priced PP will enter the Chinese market in great quantities
and domestic PP producers will suffer from heavy impacts at that
time.
   The price of PP will change with the price of energy in the
next few years. The profit margin in PP producers will become
smalle