The Impact of China's 'Blue Skies' Environmental Policy on the Chemicals Sector

One of the biggest stories of 2017 for the chemical industry is the introduction of China’s new environmental program. The so-called ‘blue skies’ policy has already seen thousands of industrial facilities and chemical plants closed, either temporarily (prior to relocation) or permanently. Production capacity in many others has been significantly reduced so as to limit pollution.

At the start of the program’s implementation, Reuters stated that, “Semi-official China Petroleum and Chemical Industry Federation reported, citing local media, that provincial inspectors had visited 1,891 plants by July 19 and that 43% of them had environmental violations.”

This is having an impact on chemical markets, as supplies are restricted, and prices are beginning to climb. No doubt, as raw material stocks begin to drop, the true effects will begin to be felt some time in 2018.

As the New York Times reports, “Through the last four decades, China has achieved breath-taking economic growth at the cost of smoggy skies, fetid streams and lakes of dying fish. Now China is undertaking one of its most extensive efforts yet to crack down on corporate polluters, an effort that could be felt economically and in world markets.”

Even the Chinese Minister of Environmental Protection, Li Ganjie, accepts that the closures will impact economic growth, especially heavier polluting industries, such as the chemicals sector. At the recent Chinese Communist Party Congress, he stated that, “It is impossible that such efforts will not have any impact on enterprises,” before adding that, “But in the long run, and from the macro perspective, the impact will be minimal.”

While the minimal impact on the macro-economy may reassure politicians in Beijing, that will not help chemical manufacturers who are facing closure, or those who are dependent on their products.

Meanwhile, chemical buyers outside of China anxiously await the results of government inspections on their suppliers. As there are thousands of individual cases of negative environmental inspections in China, it is difficult to track the true impact that the ‘blue skies’ policy is having on the overall chemical production. However, in a recent analysis of the situation, chemical industry consultants ICIS note that the following requirements must be made, “

Furthermore, sources close to chemical industry specialists at AG CHEMI GROUP, who sponsor this article, gave examples of some of the drastic measures being taken to reach environmental targets. These include, “a propylene derivatives plant that was given six months to relocate away from an inner city to a chemicals industry park. As six months is far too short a period for relocating a chemicals plant, the order will effectively mean that the plant will have to shut down altogether.”

Rubber chemicals are said to be in short supply, as are chemicals used to make polymer products such as PVC. There is also a limited supply of PVC.

Hundreds of smaller downstream plastic processors are also said to have been closed down, even in China’s key polyethylene (PE) and polypropylene (PP) market.

While chemical industry analysts continue to quantify the impact of the closures, individual chemical buyers and manufacturers, who are dependent on raw chemical materials for production, are re-assessing their supply chains. With closures hitting all levels of chemical production, suppliers are having to look a long way upstream to foresee potential supply deficits.

As such it seems wise for buyers to not only review their current chemical suppliers, but also to begin the groundwork for alternative chemical sources should the Chinese chemical production line dry up further.

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