Analysts expect the industry to grow by more than 10 per cent in the second half, on the back of the anticipated robust domestic economic performance.

They said the cyclical recovery of the industry globally, coupled with healthy oil prices, will also help bail the industry out of previous years losses.

"The sector has bottomed out," said an official with Sinopec, Asian's largest refiner. "The demand is rising, prices are increasing and investment is enlarging."

The petrochemical industry has experienced unexpected rapid growth in the first quarter when oil price hikes - driven by the Iraq War - pushed downstream petrochemical high. Although SARS (severe acute respiratory syndrome) sapped demand in April, the market quickly shrugged off the impact and since late May began to rebound, the official said.

Sinopec earlier said that its chemical segment posted a record revenue of 667 million yuan (US$80 million) in the first quarter.

Government statistics show the output value of the sector has increased by 18 per cent in the January-May period year-on-year.

Liu Yu, an analyst with Guotai Jun'an Securities (HK), said the outlook for the industry in the second half remains rosy.

To combat the fallout of SARS, the government is expected to stimulate export and domestic demand to get the economy back on the fast track.

"As a result, the demand for petrochemical products will increase, since the industry closely follows the economy's performance," said Liu.

Liu said the relatively high oil prices in the range of US$22-US$27 a barrel are also conducive to supporting the price rise of petrochemical products.

Li Chen with Shenyin Wanguo Securities said returns from listed petrochemical companies will improve with the industry's recovery.

Li anticipated that domestic listed companies such as Shanghai Petrochemical, Yangtze Petrochemical and Sinopec will record 30-40 per cent profit growth this year.

On the supply side, analysts said there will be no significant production capacity growth before 2005 and 2006 when the large petrochemical joint ventures of BP, Shell, BASF and ExxonMobil will come on stream.

As demand outpaces production, analysts said that imports will grow and competition will intensify.

China now imports almost half of all petrochemical products, such as ethylene.

Lured by the growth outlook, companies are enlarging investment in the petrochemical and chemical industries.

The German chemical conglomerate Bayer is planning to build an integrated site for the production of polymers in Shanghai. Total investment for that project is expected to run to US$3.1 billion.

"We are convinced that China will continue to gain in importance for the chemical industry," said the company in an e-mail to China Daily.

(China Daily June 30, 2003)