Industry regulators and experts are encouraging the government to curb the overheated investment environment in the highly energy-dependent petrochemicals sector.

Following the imposition of tighter controls on major energy-consuming industries such as steel, cement and calcium carbide production, the National Development and Reform Commission (NDRC) is likely to check investment in other petrochemical sectors.

The production of substances such as pure alkali and formaldehyde have been subject to heavy investment, leading to oversupply and a waste in energy, Pan Derun, vice-chairman of the China Petroleum and Chemical Industry Association (CPCIA), told China Daily in an exclusive interview.

"We have submitted a proposal to the NDRC for tightened controls over the pure alkali sector, which has seen a production that outpaces demand," said Pan.

According to industry sources, China is able to produce 1,200-1,300 tons of pure alkali annually, easily meeting domestic demand. Producers export nearly 100 tons per year.

"The industrial policy, which will likely include lifting the industry entrance qualifications and restricting exports, has yet to be finalized in the hands of NDRC," Pan said.

Shandong Haihua Group Co Ltd, based in East China's Shandong Province, the nation's largest pure alkali producer with an annual turnover of 2 million tons, yesterday told China Daily the production limit has been reached, after major expansion last year.

"We export some 20 per cent of our products to countries in the South Asia and Middle East regions to shy away from an oversupply in the domestic market, and have no plans to further scale up our production," Zhang Qinye, a company vice-director, said yesterday.

Zhang forecast recent regulations for the property market, which consumes nearly half of all pure alkali products for glass and aluminium alloy windows, will cut demand.

The CPCIA will launch a nationwide investigation of formaldehyde - a basic raw material for downstream petrochemical products - in the third quarter.

"A similar proposal on controlling the investment bout will also be submitted to the NDRC after the investigation," Pan told China Daily.

The nation can produce 10 million tons of formaldehyde annually, and facilities under construction in coal-rich areas such as Shanxi and Inner Mongolia boast capacity of at least 30 million tons - far exceeding domestic demand.

The soaring price of formaldehyde on both the domestic and overseas markets climbing 30 per cent this year has lured investors, said Zhang Xianbing, a petrochemical analyst at Shanghai-based China Securities.

"The country's macro-controls to hold back the excessive growth of industrial sectors such as real estate - to take effect in the course of time - will make the heavy investment in formaldehyde production a risk by ultimately curtailing demand," Zhang said.

(China Daily 06/21/2005 page10)