As one of China’s top three petrochemical companies, Sinopec has just decided to dissolve its joint venture with Japan’s Mitsui. This decision comes against a backdrop of shrinking earnings and heightened competition. This critical decision echoes the enormous hurdles facing the global petrochemical industry. Industrial overcapacity is disturbing global trade patterns and putting downward pressure on profits.
Based in Shanghai, Sinopec has a long history of leadership in China’s petrochemical industry. The firm is facing intense cost pressures overall. The industry’s chronic overcapacity has exerted heavy pressure on Sinopec and other market actors. In this geopolitical environment where everything seems to be escalatory and reactionary, major exporters are struggling to remain in the black.
Even as they export billions in intermediate petrochemical materials back to the United States Sinopec’s stock performance has taken a beating, showing the difficulty in an oversaturated market. The worldwide petrochemical industry is in crisis due to the massive overcapacity. This has encouraged dangerous rivalry and increased trade provocation between countries. This one-time salve wins no points for longterm viability of production. It raises questions about the viability of firms that have built business models around this space.
The end of Sinopec’s joint venture with Mitsui is strategic maneuver by Sinopec to mitigate risk in these choppy waters. Second, Chinese producers are facing growing opposition. In response, Japan’s large petrochemical companies are consolidating their plastic materials operations to improve their competitiveness against vigorous new entrants from the Chinese market.
This shift underscores a significant trend in the petrochemical industry, where companies strive to adapt to the changing landscape shaped by overcapacity. The outfall is a perfect representation of the new impacts of China’s industrial production on global trade and economic partnerships.