FOREIGN oil companies investing billions of dollars in China’s booming petrochemicals market beware: you may have been slow off the mark, analysts said Friday.

　　In the beginning it seemed a foolproof formula: set up local production to trim costs, snag a local partner to bring in customers and contacts, then sell to a market that imports half its chemicals and should expand rapidly over the next few years.

　　That’s why ExxonMobil, Royal Dutch/Shell, BP and BASF AG aim to bring a 2.9 million ton capacity to bear in China by 2005.

　　They are building a string of giant petrochemical plants, mostly with State giant Sinopec Corp., along China’s prosperous coast, in a concerted bet on one of the world’s fastest growing markets for petrochemicals.

　　But the competition might get tougher, analysts say, as exporters from the Middle East target China because other markets are weak.

　　The newcomers’ timing might also be unfortunate. The industry, emerging from one of its worst downturns in history, may head south again soon if a number of world-class plants elsewhere start up around 2005, analysts said.

　　“When they’re all up and running in 2005, that’s when the cycle will dip again,” said Cheng Khoo, UBS Warburg’s regional oil and chemicals analyst in Hong Kong.

　　“The first one to hit the market will benefit because right now supply is still very tight. But people are already forecasting that in 2005 things will decline.”

　　There’s hope yet. Analysts said that some of those planned plants might not be able to stick to the schedule.

　　“People are saying that the cycle will peak in 2005, because all of these projects might hit the market and spoil the party,” said an analyst with a major investment bank.

　　“If they all start up at the same time, it will cause huge market problems. But I don’t think that’s going to be the case.”

　　Experts agree on China long-term potential. The expected robust economic growth would boost demand for chemicals used in everything from car exteriors and CD players to washing machines and textiles.

　　China’s gross domestic product is expected to grow at least 7 percent a year in the short term, creating 10 percent growth in petrochemicals demand over the next two to three years.

　　“It’s better to be in China than anywhere else,” Khoo said.

　　Hopes run high in both foreign and local quarters.

　　Sinopec Chairman Li Yizhong said that the plants would not compete head-on. For instance, both BASF and BP would make ethylene and polyethylene. But while BASF would focus on aromatics and acids, BP would produce polymers such as polypropylene and polystyrene.

　　“Each would have its specialty. That’s what we decided on after extensive market research,” Li said in Shanghai last week.

　　Foreign players say China, one of the biggest petrochemical importers in the world, is too good an opportunity to pass up.

　　“It is important for many multinationals because the global chemical industry has entered an era of slow growth. China, on the other hand, presents exciting growth opportunities,” Eric Baden, Degussa AG’s China president said at an industry conference in Shanghai this month.

　　China consumes 10.5 million tons per year of ethylene — a raw material used in plastics, fibres and other chemicals — according to official estimates.

　　Sinopec estimates ethylene demand could soar to 13 million tons per year in 2005. But capacity would grow to just 8.35 million from the 4.81 million tons per year used now, industry experts estimate. BP reckons that deficit would take seven world-scale plants to make up.

　　“The gap between supply and demand is widening, so the future of these coastal petrochemical plants is bright,” said Andy Li, an analyst at Shenyin Wanguo Research and Consulting.

　　Demand is one thing, but profits are another.

　　Sinopec’s chemicals division posted a 476 million yuan (US$57.52 million) operating loss in the first half as prices remained near rock-bottom after the downturn of the past years.

　　Producers will continue to flood China with cheap products as demand stays flat in traditional markets, analysts said.

　　Tariffs on chemical imports have slid 3.7 percentage points since China joined the World Trade Organization last year. They will head even lower, encouraging overseas purchases, experts said.

　　A handful of world-scale plants may start up in the Middle East about the same time, potentially resulting in a surplus similat to the one that plagued the industry last year.

　　“Competition to grab a piece of this Chinese pie will grow as each player seeks to take advantage of the lowered tariffs and more favourable trade regime,” Baden said.

　　“Winning in China is not an easy task. Cut-throat competition not only exists among foreign companies in China, but also among progressive local firms.” he said.

　　(SD-Agencies)