SINGAPORE (Reuters) - China’s privately owned Bora Enterprise Group has started construction of a $2.5 billion petrochemicals plant in northeast China as it looks to finalize a planned joint venture with LyondellBasell Industries (LYB.N), company sources said.
The steam cracker, which is due for start-up by mid-2020, marks the biggest investment yet in petrochemicals by one of China’s private refiners as the country’s so-called “teapots” look to diversify away from the saturated local fuel market.
Bora and LyondellBasell last month signed a preliminary agreement to set up a 50-50 joint venture for petrochemical projects, and are currently in talks to finalize the deal, said two Bora sources and an official at LyondellBasell.
The 18 billion yuan ($2.5 billion) complex in the city of Panjin, Liaoning province, will produce 800,000 tonnes per year (tpy) of polyethylene and 600,000 tpy of polypropylene, used to make products ranging from pipes and plastic containers to agricultural films, the sources said.
Bora is one of more than 40 independent Chinese refiners that have grown rapidly since late 2015 to account for a fifth of China’s total crude oil imports, but which are now facing threats to their survival.
Demand for gasoline and diesel in the country is slipping, while the start-up of mammoth, more efficient refineries like Hengli Petrochemical (600346.SS) and Zhejiang Petrochemical has led to a growing supply glut.
Many are now scrambling to enter the higher margin petrochemicals sector, where China is expected to account for around 40% of global demand growth over the next decade.
Bora, which operates a 140,000 barrels per day refinery and is also a bitumen producer, was among the first to respond.
The $2.5 billion plant was approved in 2017 by the Liaoning provincial government as a key industrial project, while Bora in June secured a 10-year, 10.8 billion yuan ($1.5 billion) syndicated loan from Chinese banks, two company sources with direct knowledge of the matter said.
The new facilities are slated for start-up in the second quarter next year, said the two sources.
A Bora spokesperson declined comment.
“By combining the project management and construction proficiency of Bora with LyondellBasell’s technology and commercial experience, this joint venture will leverage the expertise of both companies,” Veronica Adamcik, a Houston-based spokeswoman for LyondellBasell, told Reuters.
LyondellBasell already invests in several chemical plants in China, including a joint venture with a unit of state refiner Sinopec Corp (0386.HK).
The Panjin complex, which LyondellBasell said is led by a 1.1 million tpy ethylene unit, will source 1.64 million tonnes of feedstock such as naphtha from the Bora refinery, but will need to procure another 1.1 million tonnes of propane or butane from the market, Bora sources said.
Reporting by Chen Aizhu in Singapore; additional reporting by Erwin Seba in Houston; editing by Richard Pullin