By Hepeng Jia/Beijing, China

Policies to stimulate investment and spending as well as capital inputs from the government have reversed the downward trend in China's petrochemical industry, though a quick revival is still unlikely, industry analysts say.

According to the National Development and Reform Commission, in the first five months of 2009, China's petrochemical industry's profit dropped by 31.5 per cent to 153.2 billion yuan (US$22.5 billion) compared to the same period last year, but the decrease rate was 25.8 percentage points lower than the first two months of the year.

The investment stimulus has played a role in boosting growth in industry investment, says Zhao Jungui, secretary general of the China Petroleum and Chemical Industry Association (CPCIA). The association's statistics show that between January and May, 290.7 billion yuan were invested in the industry, rising 19.16 per cent year on year despite the economic slowdown.

On 18 May, the State Council released the full text of the petrochemical industry renovation plan which it endorsed on 19 February, indicating the approval of government-subsidised national and local fertiliser reserves, 20 oil refining bases with 10 million-tonne capacities and 11 ethylene production bases of 1 million-tonne capacity, enhanced lending measures, and intensive technological upgrade support to boost the petrochemical industry (see Chemistry World: China, April 2009, p C1). 

'Compared with other countries, China's strong domestic demands also help the industry,' says Wang Weigang, a petrochemical analyst at Shanghai-based Northestern Securities.

After halving consumer tax for small automobiles early this year, the State Council released in May a new 7 billion yuan subsidy to push for the replacement of old automobiles and home appliances with new ones that are more energy efficient. China's real estate market also showed a boom after the lending policies were loosened. 

'They all increased demand for chemical materials, such as plastics and rubbers,' Wang told Chemistry World.

Zhao cautions that corporate profits are thinning and exports are declining. 'The industry's self adjustment coincides with financial crisis, so the revival could be more difficult,' he said.

However, Wang thinks that China's chemical exports are low-end consumer products while 30 to 40 per cent of the country's fine chemical materials rely on imports. The encouraging investment policies could help Chinese firms pour money into these sectors. 

'I think the [profit] growth could appear some time in the latter half this year, and as a result, the industry's whole-year profit decline should not surpass 10 per cent,' he adds.

Separately, CPCIA officials say the association has drafted the implementation details for the petrochemical renovation plan in different sectors of the petrochemical industry, due to be released soon.