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China sees plastics growth of 12% in 2004, and is poised for further growth

China , with its large population and rising GDP growth every year is marching ahead in the consumption of plastics. The consumption of the five commodity polymers (LDPE, LLDPE, HDPE, PP, PVC & Polystyrene) in 2003 had reached a level of 26.8 million tons. Almost 13 million tons or 48% of the total consumption was met by imports. China accounts for nearly 65% of all polymer demand and approximately one-third of production, indicating the considerable shortfall in polymer supply in China .  China 's dependence on imported polymer indicates that the country's polymer markets have become integrated with international markets and follow global trends. Prices of domestically produced and imported materials are being driven up by high international prices for raw materials, as well as oil and naphtha. This is leading to some pain for processors, particularly smaller ones. The following table summarizes the consumption of commodity plastics in China during 2003.

Polymer Consumption (MMT)
PE 8.80
PP 7.00
PVC 6.25
PS 2.50
ABS 2.25
Total 26.80

China 's consumption is reported to have grown from 23 million tons in 2000 to 31 million tons in 2004. China continued its strong hold on plastics demand in 2004, despite the increase in polymer prices triggered by higher oil prices. In fact, it continued to show the best growth globally. The domestic production of polymers in 2004 has also shown a healthy growth of more than 10%. PVC surprisingly showed the highest growth because of a few new projects that went on stream in 2004. One of the reasons for the stupendous growth of PVC was an 18% growth over 2003 in pipes and profiles sector. This was possible because of a mandate introduced a couple of years ago by the Chinese Government, making usage of PVC for pipes and window profiles mandatory. Rising incomes and improvement in life styles also led to a good increase in the consumption of household plastic products. Apparently the plastic end product sector grew by more than 12%.

The trade of plastic material and products has shown consistent growth in the last two decades. While polymer raw materials are imported to meet the demand of processing sector, the plastic end products continue to be exported. Their exports showed an increase of 28% in value terms, while imports of raw materials showed a growth of 20% over 2003. Plastics machinery also showed a healthy growth of 10%.

2005 is likely to be as good as 2004, if not better for Chinese polymer business.
China 's consumption is further poised to reach a level of almost 40 million tons by the end of 2005 or latest by 2006. A fter a relatively slow 2005, the Chinese economy is expected to grow at more than 8.5% in 2006 as well as in 2007. 2005 is expected to show slower economic growth in China mainly due to uncertainty in the oil price. If oil price continues to be at a higher level and beyond US$55/barrel, the growth will be lower. Government measures introduced during the year to dampen China 's runaway economic growth has had limited impact on polymer demand, as the chemical industry has not been directly targeted. However, downstream sectors and allied industries such as construction and automotive were targeted, which led to slightly slower growth due to restricted polymer consumption. Plastics and resin enterprises in China have small scale of production. Though China needs to increase plastics and resin output and improve technologies, it lacks capital inputs, making it inevitable for foreign capital to enter the industry. The State also encourages foreign businesses to set up wholly-owned or joint venture plastics and resin enterprises. However, establishment of big and advanced joint ventures will pose a serious threat to enterprises yet to attain economies of scale.

Inflation is expected to remain at 3.6% in 2005 and could be lower in the next two years. The Chinese Government has taken steps to ensure that prices do not rise beyond 4%. Higher industrial growth due to higher investments and tighter economic controls could provide the required boost in economic growth.

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