TC

21/10/2019 17:22

Pollution policies push China's chemical industry to upgrade

    Environmental and safety policies will speed up industry upgrades in China's chemical industry. This should result in more efficient production practices and better supply-demand dynamics, according to a report published today by S&P Global Ratings, titled "China Commodities Watch: Pollution Policy A Catalyst To Upgrade The Chemical Industry"
  "China's policies to curb pollution and improve safety controls will serve as a catalyst to modernize the country's chemical industry, by pushing companies to upgrade their equipment and fine-tune their production processes," said S&P's credit analyst Ronald Cheng. "Financially stronger companies will also likely invest to extend their value chains by capturing and reusing residues to increase operational efficiency by creating value out of the emissions."
  As operational costs increase to comply with stricter regulations, chemical companies will likely look to produce higher value-added products or increase production efficiency.
  S&P expects companies to continue to invest in research and development, new facilities, and acquiring companies with certain technological expertise. This contrasts with capital expenditure over the past decade--which was primarily focused on scale expansion.
  As more non-compliant companies are suspended or shut down by tighter controls, China's chemical industry will likely see a moderate level of industry consolidation. Some uncompetitive companies will leave the market, boosting supply-demand dynamics.
  China's chemical industry is characterized by its highly fragmented market structure and intense competition in some oversupplied chemicals such as polyvinyl chloride (PVC), methanol, and nitrogen fertilizers.
  In a press conference on September 2019, the Ministry of Emergency Management said 210,000 companies operate along the chemical value chain in China, 80% of which are small and midsize companies. Thousands of companies have already been shut down in the past three years in provinces such as Jiangsu, Guangdong, and Shandong.

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