It could be years until China sees the results of the ongoing push to curb excess refining capacity and tackle price wars and disorderly competition, one of the biggest independent producers, Rongsheng Petrochemical Co., Ltd, has warned.
China started this year to pay attention to the overcapacity in many key industries, including refining, petrochemicals, solar equipment, and EV manufacturing.
Chinese authorities have realized that cutthroat competition, overcapacity, and low-quality manufacturing are hurting enterprises and leading many to the brink of bankruptcies. Following months of introducing several measures to try to curb excess capacity in key industries, China has now vowed to become more serious in addressing the problem.
The Chinese government is planning to reduce the number of oil refiners and petrochemicals producers in the country in a bid to solve the industry’s problem with overcapacity.
Some outdated facilities will be retrofitted in order to boost their production. This production will also change, with the government encouraging, per a Bloomberg report, refiners to produce more specialty chemicals rather than bulk refined products, where supply significantly exceeds demand. In specialty chemicals, demand is healthier, with a focus on artificial intelligence applications, biomedical devices, robotics, and semiconductors, as well as alternative energy.
However, in the refining and petrochemicals industry, “It will take quite a long time” for the measures to be felt, Li Xinhua, global head of trading at Rongsheng Petrochemical, told the APPEC by S&P Global Commodity Insights conference in Singapore on Tuesday.
Eliminating about 100 million tons of refining overcapacity would take three to five years, according to the executive of one of China’s top petrochemicals producers.
Tackling excess capacity will need coordination and discussions between the central government and the local authorities where plants are located, because closure of old, small, and outdated capacities would involve job losses.
The talks will take time because capacity closures will impact employment in China, Li said at the Singapore conference.
By Tsvetana Paraskova for Oilprice.com
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