China’s ambitious new Silk Road network, India’s plan to build more than 100 million toilets in six years and the continued movement of millions of people into cities across Asia have boosted demand for plastics. Futures prices for polyvinyl chloride (PVC), used in products ranging from pipes to bank cards, rose by more than 80% in China in 2016. Asian petrochemical producers are riding the boom, as they are closer to end-users and manufacturing hubs. Their profits and share prices continued to rise and they are investing in new projects to expand their business.
The annual demand for ethylene is expected to grow by more than 10% annually over the next decade, driven by the “Clean India” program seeking to end open defecation by 2022. The Indian Petrochemical Industry group has welcomed the program as a “boon for the plastics industry”. It will require building hundreds of millions of toilets, waste pipes and water supply systems to bring sanitation to more than 700 million people. India is short of domestic PVC and has been sourcing from countries such as South Korea, increasing the latter’s exports.
China’s huge “One Belt, One Road” (OROB) initiative to build a vast rail, road, shipping and factory network between China, Central Asia, Africa and Europe, will require millions of tonnes of plastics. In addition, the urbanization of tens of millions of Asians each year will result in 650 million new petrochemical customers within two decades. The region will see significant investment in petrochemicals up to 2025, adding 100 million tons of output of basic chemicals, including ethylene. Sinopec Corp (NYSE: SNP), Asia’s leading refiner, has announced a joint venture with private Taiwanese firm Dynamic Ever Investments to build a petrochemical complex in China’s south eastern Fujian province. Korea Petrochemical Industry Corp (KRX: 006650) and Malaysia-based Lotte Chemical Titan (IDX: FPNI) also plan to expand in the province in 2017. In the Philippines, JG Summit (OTCMKTS: JGSH) plans to increase its petrochemical business by 2019.
With the abovementioned and other developments taking place in the region, Mergent expects the sector to witness expansion in 2017. During the year, China, India, Indonesia and Malaysia will be ranked as the most attractive countries for new business expansions. Low-cost labor in countries like Myanmar, Cambodia, Laos, and Vietnam also have a competitive advantage. Thus, with the region’s consumer bases, growing plastic import and export markets and growing foreign trading powers offers investors a vast amount of opportunities in the region.
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