Turning Coal Into Plastic: China's Coal Revolution

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Nina joined TCBN's Michael McCune from her office in Columbus, Ohio, to talk about the current trends in the global plastics industry and how China is leading the way on many fronts.

Interview Transcription

TCBN - Because you cover plastics you see a lot of industry activity in not only plastics manufacturing, but also in the supply and processing of resins, which are basically petrochemicals. What can you tell us about the supply of petroleum based raw materials for the plastics industry in China - how government and industry view the importance of the supply, and the trends that result?

SUN - Asia is the prime market for the global petrochemical industry. Within Asia, China is the most important destination, importing resin not only for the consumption of its own domestic consumers but also process the plastic resin into a wide arrange of finished products across industries such as automotive, packaging, electronics, consumer products, construction, medical, telecommunications, etc. These products are then exported to the rest of the world. That’s why China has a seemingly limitless appetite for petrochemical products. It is worth noting, however, that China’s domestic market is becoming more important than ever, especially as other markets witness a fairly significant slowdown during the global recession.

Now, on the supply side, China’s petrochemical industry has come a long way towards self-sufficiency. Back in 1949, when the People’s Republic of China was founded, China’s petrochemical capacity was negligible. Today, the nation is the second largest producer of polymers in the world, after the United States. Still, with domestic demand continues to outstrip supply, China is and will remain in the medium-term a net importer of polymers and the largest importer in the world. In 2009, China depends on imports for at least a third of polymer demand. Most of the increase in demand will be covered by both Chinese and Middle Eastern supply from new petrochemicals plants due to come onstream in the coming years.

You asked about the government view. Because of the fundamental importance of petrochemical supply to the entire manufacturing sector, the Chinese government has been pushing for self-sufficiency and technological improvement. In the first quarter, Beijing announced a 500-billion-yuan stimulus package just for the petrochemical industry, including investment for 20 new large-scale petrochemicals projects with a combined capacity of 5.2 million tons per annum.

I want to point out that state ownership has been dominating China’s petrochemical sector, especially through the two leading companies, China National Petroleum and China PetroChemical. However, there’s no lack of foreign participation by leading multinational producers. In terms of foreign direct investment, companies like Exxon Mobile, Dupont, BP, BASF, Sabic have established joint venture plants in China. In terms of technology licensing, we are seeing Chinese projects using technologies from such companies as Chevron Phillips and Dow Chemical.

Meantime, some experts caution that, while the global economy is in a phase of slowdown, Chinese expansions over the next two years could create a surplus of supply, if not in China then in the international market. This could drive down international polymer prices and put more pressure on Chinese petrochemicals producers’ profit margins, despite the easing of feedstock prices.  

TCBN - I saw in Plastics News recently that Sinopec has surpassed Kraton as the world's largest producer of SBC. What does that mean?

SUN - SBC is a type of high-performance thermoplastic elastomer. In the case of Sinopec overtaking Kraton on SBC capacity, two things to keep in mind: 1. Sinopec’s capacity is only a hair larger than Kraton. About one percentage point. 2. These two companies’ SBC products vary on quality, price points, market position.

Chinese businesses and industries always strive for “bigger, stronger.” As far as I’m concerned, being the largest in the world is not that a big deal. Think about it. China represents a quarter of the population on the earth. All these people are catching up on living standards with the rest of the world. In order to fulfill these people’s growing consumption, together with China’s massive exports, the quantity easily adds up. So the emphasis should really be put at “stronger,” not just “bigger.” The industry leaders need to upgrade their product offerings, reduce dependency on government subsidies, and improve their profitability, corporate governance and transparency.

It’s the same thing with processing machinery. China is the largest producer of plastic and rubber machinery. But imported machines and those made by foreign companies in China still lead in the high-end-applications.

I guess there’s a reason why the slogan is bigger, stronger, not the other way around. You first reach a certain scale and then from there, pursue high quality and technological advancement. It takes time. But I believe these companies are on the right track.

TCBN - There are two major global issues related to plastics in China - geopolitical energy issues, and sustainability issues. What can you tell us about the ways that China's plastics industry affects industry, government, and people in China, and in the larger world?

SUN - Let me first give you a little background: conventional polymers can be produced by refining and processing crude oil, natural gas or coal. China doesn’t have particularly rich oil or natural gas reserves, but it’s the world's leading coal producer and consumer. Coal accounts for about 70 percent of China's energy use. Until 1950, coal had been the main raw material for the petrochemical industry in China. Then oil gradually took over. Now coal has made a comeback. Some people call it the renaissance of coal chemical. 

TCBN -Well Nina, there are definitely many issues to keep following with regards to plastics – their origin, their use, their final recycling or reuse. I appreciate you having some time today to share with us your perspective and knowledge on those topics. We look forward to having a chance to speak with you again in the near future.

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Some plastics trivia from Nina:

• More than two-thirds of China's PVC production is coal based. This technology is no longer used in most parts of the world.

• In June 2008, China ordered a nationwide ban of ultrathin plastic bags and free-of-charge shopping bags.

• China is the largest importer of plastic scrap especially from North America and Europe.