A glut of made-in-China plastic will dent oil’s growth machine

economictimes.indiatimes.com:

China look set to send a deluge of production into the market. The construction of more than 20 petrochemical projects — to produce raw materials that go into making everything from plastic packaging to clothing and detergents — will be completed across China this year, said industry consultant ICIS. While part of their output will go into factories across what is still the world’s largest consumer, a slower-than-expected rebound in China’s economy and excessive investment means oversupply is on the cards.

As a result, returns for making petrochemicals such as ethylene and propylene are set to shrink, extending a malaise from this year when June margins stood at about 40% below 2019 levels. China has been expanding enthusiastically in the industry as domestic demand growth for plastics began to outpace other oil-derived products such as transport and industrial fuels. While the initial idea was to move up the value chain and compensate for the drop in gasoline use as more people switch to electric cars, the completion of so many plants at once is setting the stage of a glut and squeezed profits, but also an overnight increase in market share and dominance.

Unable to take on more at home, China is exporting more cheap plastics into the rest of the region, eating into the market share of traditional manufacturing giants, such as South Korea and Japan. That’s bad news for large producers in the region like Formosa Plastics Corp., Lotte Chemical Corp. and GS Caltex Corp., now competing with China’s might.