China may have to implement aggressive policies to boost the economy

Experts have suggested that China may have to implement aggressive policies to prevent its economy from collapsing any further, especially considering how the official purchasing managers’ index (PMI) has slipped into a contractionary mode.
 

The PMI is a barometer of an economy’s manufacturing activities and China’s PMI has declined for the fourth successive month in January to 49.8, down from 50.1 in December 2014.
 

The last time China’s PMI went below the 50 mark was in September 2012. The demand in the manufacturing sector is considerably weak and more aggressive monetary policies will be required to prevent a sharp decline in growth.
 

In 2008-2009, China implemented a yuan 4000 billion economic growth plan to prevent global financial crisis, which targeted the housing, rural infrastructure, transportation, health and education sectors, and in 2012 China approved 60 infrastructure projects worth over CNY1000 billion.
 

China is one of the top two biggest economies in the world and is a major market for petrochemical imports in Asia, but China reported the slowest annual growth in 24 years in 2014 at 7.4 per cent as a result of sluggish domestic demand and volatile exports. The country also witnessed a decline in revenue growth since 1991 last year at 8.6 per cent.
 

HSBC reported its January PMI for China and recorded a lower reading of 49.7, down from 49.8 but slightly higher than 49.6 in the previous month.
Chinese manufacturers have witnessed a decline in operating conditions at the start of the current year, and though output increased ever so slightly and new orders started trickling in, but staffing levels were reduced for the fifteenth consecutive month.
 

And reduced client demand has forced firms to cut their stock holdings of both post- and pre-production goods in January. Experts suggest that China may turn to fine tuning its policies instead of implementing an aggressive economic stimulus programme. This stance may only increase commodity demand and prices for a short period of time.
 

China’s commodity demand is expected to increase this year as the government continues to focus on a consumption-led economy.
 

China’s central bank- the People’s Bank of China may probably slash its one-year lending rates by 25 base points to 5.35 per cent in the first quarter of 2015.
 

A report also showed that most sub-indexes have declined, including new orders and new export orders. New orders index has declined by 0.2 points to 50.2 in January and the production sub-index by 0.5 to 51.7. Purchasing volumes index also declined by 0.5 to 49.6 in January. While, new export orders index dropped by 0.7 from the previous month to 48.4, and imports index slipped 1.4 lower at 46.4.

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Optimal usage of agrochemical key to raise food yield of India

Over the next two decades India is set to observe its largest ever phase of urbanisation and would like to keep food security without a scratch by promoting optimal usage of agrochemicals as a key to raise food yield of India. As per the industry experts the major plunge to the process of urbanisation is likely to confer through greater migration to cities with people looking for better opportunities and rising literacy. Moreover, in order to provide accommodation to the rural Indians who are moving out of small towns and villages in seek of better opportunities and growth the new government has precisely put an emphasis on creating new cities.

By expanding the urban space it is explicable that rural land will rapidly be guzzled amid rising pressure on existing cities and improved shove on creating new urban centre. However, this trend in past two decades has now already been seen as a Special Economic Zones (SEZs), industries, new residential localities and an expressway which stands on what were once known as lush green fields growing crops.

According to one of the researched report, in the four decades from 1971 to 2008 urban population of India had gone up by nearly 230 million and now it is anticipated to take only half this time to add the next 250 million. Moreover before the urban expansion, India was on the cusp of a never seen.

Furthermore, the production of food grain in India in the year 2011-12 had recorded 259.29 million tons, however the production of food grain has to be ensuring with rise in per hectare, as we have a glance at the scenario where the land which is under cultivation will decline with an instantaneous increase in population. Nevertheless, the boost in the production in order to congregate the budding need for food grains that can be achieved solitary through larger prominence on agrochemicals and their astute use.

As per the industry experts, aimed at sustaining agricultural practices the agrochemical consist of a wide range of chemical compounds, which contains insecticides to fight against insect attacks, herbicides to root out unwanted weeds that becomes parasites on the key crop and slow down yields, pesticides to protect the crop from pests and rodents and fungicides to prevent loss of crop owing to disease infestation.

However, through promoting optimum use of insecticides and pesticides and rising yield per hectare and minimising loss, one can plan to keep our food security intact in the next two decades as it is of utmost importance.

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Declining oil prices benefits the West

The fall in oil prices in the midst of violent clashes in Iraq, hightened tensions between the West and Russia and sanctions against Iran has brought about drastic changes.

However, the rising supplies of crude in North America and the slowing demand have led to a decline in prices, a move indicative of how the shale oil boom has benefitted Washington and its Western allies both politically and economically.

Russia and Iran are dependent on oil sales and are currently experiencing budget shortages, which has affected their position in negotiations concerning Ukrainian sovereignty or the Iranian nuclear deal.

Increasing oil production from the US and Canada have helped provide a buffer against threats of supply disruptions from Russia or the Middle East.

Russian currency has declined drastically against the dollar as its economy is restrained by sanctions from US and EU. These sanctions have forced Russia to shell more money for imports.

Oil production in the United States has increased tremendously. US continues to ban export of crude and has forced barrels from West Africa and the Middle East to look for new markets.

Lower oil prices will benefit US energy firms, while the consumers will gain from spending less the pump.

On the other hand lower oil prices will affect Iran's economy as well as its crude sales. Analysts have also stated that despite having captured oil fields in Syria and Iraq, Iran will be affected by lower oil rates as they will have to discount the black market sales that provide funds for the militant group.

As far as Saudi Arabia is concerned, lower oil prices may lead to short-term budget shortages.

Experts suggested that a price drop may not spur action from OPEC members unless crude falls below $85 per barrel.

For the time being, the surge in US oil production combined with poor demand has forced traders to store additional barrels as they wait for prices to improve.

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Indian agrochemical market to reach USD 7.5 billion by 2018-19

After Japan, United States and China, India is noted as the fourth largest producer of agrochemical globally and for the Indian economy it is also a significant industry. According to the researched report, in the year 2013 the domestic crop shield industry stood at USD 2.1 billion which has in turn over the five years has grown at around 8% compound annual growth rate (CAGR). In addition, the exports of Indian agrochemical have boost around 17% compound annual growth rate (CAGR) to USD 2 billion, in compare to last five years and had reported for nearly 50% of the total production.

In the fiscal year of 2013-14 the Indian agrochemical market has been estimated at USD 4.25 billion amid exports consisting 50% of the market and in order to reach USD 7.5 billion by the fiscal year 2018-19 it is projected to boost by 12-13% per annum, according to the report released by the Minister of Chemicals & Fertilizers, Ananth Kumar.

In the Indian economy the agrochemical industry plays an important role and is also noted as one of the key component of the speciality chemicals industry. Moreover in India, with the rising demand of dilapidated farmlands and food grains, have increased demands on farm yield enhancement and diminution in crop losses due to pest attacks.

According to one of the researched report by the fiscal year 2017 the crop protection market is expected to boost at around 12% per annum to reach USD 6.8 billion as in the past the crop protection market has experienced a sturdy growth and the demand of export will be largely driven as it is anticipated to grow at 15-16% per annum and at the same time as it also expected to boost its domestic demand by 8-9% per annum.

Moreover in India at present bio-pesticides is the only pesticide market with overall 4.2% and in the near future, it has been projected to reveal an annual growth rate of about 10%. According to the Chemicals & Fertilizers Minster few pesticides which has been banned in the US, could be ban in India also and by increasing the usage of bio-pesticide these have several advantages over conformist pesticides. As they are by and large intrinsically less toxic than conformist pesticide and target pest are normally affected by these chemicals, which are closely related organisms.

In terms of low awareness among farmers where approximately 25-30% of farmers are aware of agro products, Indian agrochemicals industry faces challenges in spite of strong growth drivers and for the industry players, large number of end users reach across the managing inventory, geography & distribution costs is also a challenge.

In past few years the growth in local demand have been outpaced due to exports of agrochemical from India and is now reckoned as one of the leading suppliers  of quality technical agrochemicals at attractive pricing, like Indian pharmaceuticals industry. However, few long term trends in the Indian industries will be posed by new challenged.

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Saudi crude production to remain high in 2014-2015

Saudi crude production, according to a recent report, will remain high in 2014 as well as 2015.

This report is based on OPEC outages, geopolitical crisis (Libya, Ukraine and Iraq), rising domestic use from the power and transport sectors, growing demand from the refining sector as well as the improving global economy.

The report suggested that the outlook for gas looks bleak, in spite of efforts and plans to tap unconventional resources. The increasing consumption and tight supply may force Saudi to consider imports.

Saudi oil reserves are expected to increase as much as 273 billion bbls by 2017, but may decline to 265 billion by the end of 2023.

 In 2013, Saudi had planned to add 160 billion bbls in additional reserves in the coming years.

The Kingdom has succeeded in maintaining high oil production levels and exports in the first half of 2014.

Experts suggested that crude oil and lease condensates production will stay at current levels throughout the current year.

2014 will see production of nearly 9.78 billion bpd, an increase of 1 per cent from 2013 production levels, but lower than output in 2012.

2015 will likely see a decline in oil production, at 9.8 million bpd.

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Global alcoholic raw material market is expected to rise in future

The global alcoholic raw material industries in geographical markets is more or less divided in North America, Europe, Asia and other markets where European region is noted as the largest share of alcohol consumption with an overall sales of 30% revenue that is followed by the North American market. According to the researched report, over a period the constituents market of alcohol globally is projected to experience a steady growth.

Driven by a combination of new trends through changing demandpatterns and emerging economies, the growth of global alcohol raw material market such as colours, flavour and other raw materials are expected to reach USD 1.18 billion by the 2019 which is noted to be up from 989.2 million in 2013.

According to the recent reports done by Frost & Sullivan, due to rising demand for yeast and enzymes, strong growth has been projected in the other ingredients sector of alcohol, however flavor is noted as the major sector of the alcohol raw material market. Geographically in developing regions such as Asia-Pacific focus is projected to boost, as in this region the consumer spending on alcohol is mounting high.

Furthermore, the main components of most alcoholic beverages are Ethanol and water, where Ethanol is the most important alcohol fuel that can be formed by converting the starch substance of biomass feedstock into alcohol.

As per analysts, development of new product is likely to gain swiftness in the ingredients legroom as in the alcohol beverage industry innovation is noted as a key success factor, moreover with consumers embracing legitimacy and sticking to products they know best the customer loyalty and brand image will also coerce growth.

Moreover, as smaller and regional industries have substantial knowledge of the local market, companies with a global presence are likely to firm up with them as it will help them to modify alcoholic beverage production to go well with varying regional and local tastes. Furthermore in next few years, the global alcoholic raw material market will uphold a constant growth along with greater investment potential.

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Middle Eastern oil prices to rise

Growth of OPEC and non-OPEC oil supply is expected to decline within the next 18 months and the average Brent prices for 2014 and 2015 are likely to range from $106-$109 and$103-$108, respectively.

A recent report suggested that Brent prices may increase on the back of tighter supplies. Most research groups were expecting oil prices to decline as a result of strong dollar, slow GDP growth and increasing supplies.

However, Brent crude oil front-month contract rolling prices have average $109/bbl and a number of reasons have been responsible for these high rates. Geopolitical crises and supply issues coupled with depreciation of the dollar by 2 per cent and the rising US inflation have pushed up oil prices.

Non-Opec supply accounted for nearly 4 quarters of the 2 million bpd supply growth on a year-on-year basis, but is currently growing by only a million bpd year-on-year, which will lead to limited supply. Majority of the growth is expected to come from North America and nations like China, Brazil, Russia and Columbia will enjoy only limited gains. Thus, a number of key producers will likely face declines.

WTI is expected to fall below $100/bbl in 2014, while US benchmarks will see downside risks. The WTI crude oil forecast for 2014 and 2015has now been revised to $98/bbl and $96/bbl, respectively.

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Policy support for biofuels seems to be losing ground

Biofuels which are derived from other waste like animals and plants are in form of liquid fuels and Bioethanol and biodiesel are the two forms of biofuels which are used as a replacement for gasoline and diesel. A massive growth area around the world is embodying by biofuels which play a major role in relocating the types of fuels which are being used in the past few decades by the world. The size of the biofuels business is large and according to the estimate done by a researched report, in the year 2013 the production and uptake of biofuels had augmented to 115 billion litres from 16 billion litres.

According to the industry experts, the businesses of biofuels are vitally reliant on the right public policy support and have been uphold by the financial assistances in several part of the value chain, moreover Europe and the US are the two countries which are mostly now as the largest markets for biofuels. Furthermore, in these two countries the policy support seems to be losing the ground even though it is having aftermath.

Increase in demand at a global level seems to be incredible for biofuels and for automotive fuels in the outlook of overall demand, it is equally imperative to spot it. According to the International Energy Agency (IEA) in the year 2013, on an energy basis the world road transport fuel demand had reported biofuels for just 3.5% and the IEA which is an autonomous organization that works to ensure reliable, affordable and clean energy for its 29 member countries and beyond, targets for a low CO₂ emissions scenario by the year 2050.

In the past few years in the US the waning interest of policy makers for biofuels have also drawn closer from their superior sense of energy security than anytime and the country will eventually be transformed from a net energy importer to a significant exporter after an innovation of a bountiful quantities of cheap shale gas, which may perhaps be an imaginary vision five years ago.

Moreover as per the researched reports, in the developed countries of the world the policy support for biofuels are being diminished for various reason and in the most major markets the complete consumption numbers for diesel and gasoline are also being dilapidated owing to technology shifts, environmental issues and dynamics of demographics.

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US asserts its position as the world's largest oil and gas producer

The US has succeeded in overtaking Russia and Saudi Arabia to become the largest producer of crude and natural gas liquids. A recent research revealed in the past six months the US has had overwhelming success in the oil and gas sector.

Natural gas prices in the US are on the lower end compared to international prices as a result of the shale gas revolution.

In North America, the industrial sector has witnessed mixed results as some segments have had only moderate growth. Increased production of oil has obviously led to improved employment rates. Wages have also improved in states with greatest oil output in the past five years.

Investment in the oil and natural gas sector accounts for nearly 20 per cent of the total US private fixed  structure investment- a figure which is as high as residential investment.

Looking at US inflation before and after shale oil boom, inflation drivers have moved from labour market slack to production slack and increased concerns about inflationary fiscal policy. However, oil prices continue to remain strong in both periods.

Global oil producers have been struggling due to disruptions in engineering or geopolitics.

The shale gas boom in the US has had a major impact on the US and global economies. Oil production in the US has increased by,70 per cent, while production of natural gas expanded by 40 per cent, helping them overtake Russia and Saudi Arabia.

LNG and crude oil imports into the US have declined as a result of expanding supply. Thus domestic production has helped America reduce dependence on foreign fuels and spends less than 1.5 per cent of national revenue to purchase foreign oil and gas- a marked improvement over the situation in 2008.

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Fertiliser industry is in wait and watch stance for several policy changes

India’s one of the leadings players – chemicals and fertiliser sector, ought to endeavor amid top five chemicals and petrochemical industries and most of the fertiliser manufactures have taken a stance of wait-and-watch to explore more options to boost investments. In last few decades, in fertiliser industry very less of investments have taken place due to one after the crisis. According to the sources, natural gas which is a preferred raw material for urea manufacturing has significantly showed rise in the prices.

Moreover, natural gas is one of the most efficient and cleaner fuel & raw material when it comes to the production of ammonia, however with the inadequate availability of gas few urea producers were forced to use alternate liquid feedstock to keep their plants running at curtailed rates, whereas few manufactures have vigorously shutdown their plants. According to the sources, on 1st July, 2014 the oil ministry had passed a note to the cabinet demanding a fresh formula for gas price and will likely fragment the formula of Rangarajan for decisive domestic natural gas price.

According to the industry experts, the pricing formula that pushed the gas prices higher as suggested by the Rangarajan panel will be juggled around on certain elements by the government. Furthermore, the domestic prices through most calculations are expected to be double in near future from around USD 4.2/mBtu to around USD 8/mBtu from July, 2014.

Moreover, as per the sources to revive fertilizer plants several Indian public-sector companies are getting together that are also undertakings. Major fertiliser manufacturers of India Rashtriya Chemicals & Fertilizers Ltd., GAIL India and Coal India Ltd., will revive the Talcher unit of Fertilizer Corp of India by investing USD 1.3 billion with an aim of producing

1.2 million tons/annum of ammonium nitrate and urea. Furthermore according to the researched report, Rashtriya Chemicals & Fertilizers Ltd. which is noted as one of the leading producers of fertilizers in India will aim to double its turnover in the next five years.

However, Ananth Kumar the Union Minister for Chemicals, Petrochemicals and Fertilisers on 4th July, 2014 had announced that at present there are no such plans to boost the prices of urea or cut the subsidies and the market of urea is currently tamed and valued at the cost of Rs. 5,360 a ton. In addition to it Ananth Kumar has pointed out that his ministry had sought good reason of more incentives and taxes in the imminent Budget for the fertilisers, petrochemicals and chemicals sector.

As per the sources, China is one the first country to use coal based ammonia production which is probably one of the aggressive methods, however the country has also produced methanol for olefins by using coal as a primary hydrocarbon resource. 

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India to pay for crude oil purchase from Iran through UAE central bank

India is considering clearing some of its pending oil payments to Iran through the United Arab Emirates central bank, under a system that would enable Washington to keep a an eye on the flow of the funds.

India will be making a payment of $1.65 billion under this system which involves sending funds through the US Federal Reserve.

Tehran has been permitted to access $4.2 billion in blocked funds, which can be seen as a token of appreciation for Tehran's cooperation in the nuclear talks.

Asian countries like Japan and South Korea have made payments in accordance with a schedule decided upon by world powers in November.

The payment has been divided into eight instalments, ranging from $450 to $650 million each, from February to July. India will be taking the last three instalments of $550 million each. Under the new system, RBI would purchase dollars from authorised currency dealers. The RBI would then ask the Federal Reserve to transfer dollars to the UAE central bank's account there.

The Western sanctions on Iran prevented access to banking channels for tansfer of crude oil payments, affecting its economy.

Iran has asked India to pay $1.65 billion in three equal instalments through the UAE central bank. The system used to make the payments is complex but will ensure transparency.

Firstly, Indian refuners would be directed to deposit money in rupees to the account of an Iranian bank with UCO Bank, which would be transferred to the RBI for remitting to a new account held by the UAE central bank.

The UAE central bank would then make payments to the Iranian central bank in dhirams. Once the RBI receives payment confirmation, they would remit an equivalent sum in dollars in the UAE account at the Fed. The RBI would also pay for the dollar purchases using funds in the UAE rupee account at the Indian central bank.

Indian oil refiners Mangalore Refinery and Petrochemicals Ltd (MRPL.NS), Indian Oil Corp. (IOC.NS), Essar Oil (ESRO.NS), Hindustan Petroleum Corp (HPCL.NS) and HPCL-Mittal Energy Ltd. will have to pay about $4 billion  to National Iranian Oil Co.

In the first two instalments, MRPL would be paying nearly $238 million, Essar $232 million, IOC $57 million, HPCL about $8 and HPCL-Mittal about $15 million. India has been making 45 per cent of the payments by remitting rupees into Iranian account with UCO Bank, which Tehran plans to use to import goods from India.

India had relief on Turkey's Halkbank HALBK.IS pay for its oil purchases but this channel was closed in February 2013.

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Hurdles in the path to sustainable growth

The chemical industry of China faces innumerable challenges, including sustainability, feedstock change and human resource management. Despite the opportunities available to the chemical companies these challenges can prove to be major hurdles in the path to establish a sustainable economy.

China has been trying to reduce its dependence on non-renewable resources and its entry into the alternative feedstock sector can give rise to a new set of challenges. Changing the energy mix will have a direct impact on the chemical companies. The US petrochemical and energy sectors have reduced their reliance on heavy feedstock to lighter feedstock, a change brought about by the shale gas revolution. Thus, increasing number of crackers are replacing existing naphtha capacities. This transition, however, may not be so smooth for China. China has and continues to invest in naphtha-based ethylene capacities. Its crackers are dependent on the refining sector and naphtha accounts for 75 per cent of the feedstock use.

However, the increasing use of naphtha has pushed the government to make use of the country’s shale gas reserves to promote coal-to-gas technology. But this sector is still being explored and the plan of using coal as feedstock has not materialized. There isn’t a single coal-to-gas plant that has started commercial production. However, these projects would require huge investments and are likely to consume enormous amounts of resources. For instance, a plant producing 4 billion cubic meters of gas per year will consume nearly 16 million tonnes of fresh water annually.

Despite government and industry initiatives to establish a sustainable sector, sustainability continues to be a major issue for the chemical industry. Many chemical companies are yet to understand that sustainability will not only lead to reduced environmental impacts and carbon footprints, but also help reduce costs.

Chemical companies in China continue to focus on scale of operations and capturing new markets. However, forming joint ventures with firms in Europe and America will encourage Chinese companies to embrace sustainability. The Chinese government has formulated a plan which focuses on reducing carbon emissions and encouraging use of clean energy. The government has introduced scientific means to record carbon emissions of various firms in major industries.

The government should also encourage heavy industries to focus on returns as well as environmental protection. However, sustainability is not the sole prerogative of the government and industry players should also work toward establishing a sustainable economy.

Certain chemical companies have started investing in new products, using alternative feedstock and encouraging stakeholders as well as supply chain participants to be environmentally conscious. But there continue to be a large number of firms that fail to link their business strategies to sustainability goals. Sustainability should be made a priority, a vital business practice, in order to help China make hassle-free transition to a clean economy.

The industry continues to be plagued by poor management of human resources. Several enterprises are over-staffed with overlapping management levels and reduced efficiency. Chemical companies need to bring about changes in the organization structure and employ talented workforce to promote diversification and greater flexibility. The need of the hour is to reform company management and staff training programmes. 

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The chemical companies of China

The assessment of various chemical companies of China has revealed certain unique features (scales of operations, quality, technological innovation etc) which have helped these firms strengthen their foothold in the industry.

Key Chinese firms have succeeded in achieving vast scales of operations, enabling them access to both domestic and foreign markets. Majority of these companies also have succeeded in ensuring product quality. Sinochem, for instance, is China’s fourth largest chemical and petrochemical company and is engaged in sectors like energy, agriculture, chemicals, real estate and financial services. It is one of the largest fertilizer suppliers and distributors, equipped with formidable chemical logistics infrastructure. Sinochem is one of the leading pesticide producers with two national pesticide R&D centers and three production units.

Hubei Yihua Group is a major polyol producer and has a domestic market share of 80 per cent. This firm also produces fertilizer, chlor-alkali and mineral salts. It has over 20 subsidiaries and 60 per cent of its markets are located in Africa, Southeast Asia and South America. The firm also has five joint ventures and 26 R&D centers. They focus on phosphorus chemical industry, salt chemical industry, coal chemical industry, mine development and natural gas chemical industry.

A distinguishing feature of the Chinese chemical companies is that the major players are prepared to bring about upgrades and reforms. Many chemical companies are improving their safety and management systems and including new materials and green products in their product portfolios.

Another vital characteristic of Chinese companies is their willingness to promote technological innovation, spend on research and improve their production processes. Chemical companies have started investing huge amounts of money and resources into producing new chemical materials required for information technology, energy, automotive, green construction etc. Increasing number of companies are aiming for technological innovations as well as self-sufficiency and sustainability. The Wanhua Chemical Group intends to revitalize the national polyurethane industry through improved technology.

Risun along with its subsidiary Xu Yang Holdings is a major coal chemical product manufacturer and has been trying to strengthen its position in a new sector using technology from Germany and international research institutes.

Nanjing Red Sun Group has succeeded in developing eco-friendly, low toxicity pesticides through its own efforts. These companies have also benefitted from the infrastructure support provided by the Chinese government.

China’s approach to R&D has changed drastically in the past few years and spending on research is expected to increase exponentially in the future. China has already become a global leader in areas like chemistry, engineering and materials science.

A vast majority of the chemical firms have shifted their focus from product management to branding. These firms are engaged in active promotion of their brands in the world market. Shandong Linglong Group has formulated a strategy of improving quality and obtaining patents to market tyres in the international market. Its strategy of setting up a capacity of 3.5 million tyres per year and manufacturing high-value brands has helped the company become a global name.

Apart from producing high quality products, Chinese firms are also focusing on improving the quality of their services. Hubei New Yang Feng has developed a national sales team and new marketing concepts as well as a competitive management model. The company employs over 400 expert sales staff, 2000 first level agents and 30,000 second level retailers throughout China. They have broadened the range of their services to include soil survey testing, dissemination of fertilization knowledge and agricultural management.

Wengfu Group has focused on making its brand appear environment friendly. The enterprise works on integrating phosphorite mining with other fertilizers. Wengfu makes use of several hazardous materials and thus focuses on waste utilization and efficient use of resources to improve its global image.

Thus, Chinese companies no longer focus only on scales of operations but are engaged in producing eco-friendly, quality products and establishing a sustainable economy. 

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Growth of Chinese chemical industry led by urbanization

The chemical industry of China is expected to face a number of challenges but not without enjoying its share of opportunities. Urbanisation, increasing investment in infrastructure projects and growing consumer spending will be major sources of demand for bulk chemicals, specialty chemicals and high grade polymers.

The government is currently engaged in improving domestic consumption. The growing population and household income, increasing consumers and governmental support for domestic consumption are reasons to be optimistic. The retail market is likely to witness exponential growth and private consumption will account for a greater share of GDP, from 35 per cent in 2009 to 40 per cent in 2016. Consumer electronics are expected to grow by 23 per cent per year between 2008-2015.

With continuity in urbanisation consumption sources will also increase. China will likely achieve an urbanisation level of 60 per cent by 2020. Development of infrastructural facilities is on top of the priority list of the government and is also planning to use efficient transport logistics to link the country together.

Settling the rural workers into city life could cost around RMB 650 billion a year. About 390 million more people from rural areas are expected to be urbanised before 2030. The government will have to spend around RMB 51 trillion (USD 8.3 trillion) to complete the process of urbanisation. Theses figures indicate that China's domestic consumption may increase from RMB 16 trillion in 2011 to RMB 30 trillion in 2016.

The urbanization process will also improve infrastructure construction and investment in many related industries. Increased building construction and output in the manufacturing sector will drive gains. Changing building codes to limit energy use in building applications as we all as measures to limit energy consumption in manufacturing processes will further growth of the industry.

Building construction sector will continue to account for over two fifths of China's insulation demand. Construction is expected to witness a growth of 24 per cent until 2015. Urbanization, with greater focus on green buildings will spur further growth.

Water treatment is also growing at a fast pace. Increased water stress and environmental concerns in China generate huge potential for water treatment chemicals. The water treatment chemicals market is expected to be worth USD 3.3 billion a year by 2018.

Waste water treatment chemicals sector is also expected to witness major growth. Chemical firms have been engaged in developing green chemical products and nanotechnology to make the waste water treatment programme more effective.

Urbanisation and stable demand for automotive, wind & solar energy, water treatment, consumer electronics, packaged foods, construction sectors and water treatment will increase consumption of fine and specialty chemicals.

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