Will Buffett Be Stuck With China's Plastic Overcapacity?
Warren Buffett's acquisition of OxyChem may expose him to China's chemical overcapacity, as Occidental Petroleum cites competition from Chinese exporters as a reason for the sale. With Chinese producers capturing 30% of the PVC export market, U.S. chemical margins are under pressure. Analysts warn that Buffett's investment could struggle against Chinese cost structures, potentially leading to a high-capex, low-margin scenario. Investors should watch Chinese export volumes and U.S. PVC margin trends to gauge the risks of this deal.
Warren Buffett's OxyChem purchase might not just be about polyester or polyvinyl — it might be about picking up exposure to China's chemical overcapacity. Occidental Petroleum Corp (NYSE:OXY) has openly cited increasing competition from Chinese chemical exporters as a key reason to jettison OxyChem.
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As JPMorgan analyst Arun Jayaram observes, the deal is predicated on a "lower for longer" view of U.S. chemical margins, driven largely by expanding global export capacity from China. In other words, Buffett may be getting OxyChem just as margins come under hammer blows from Beijing's factories.
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Chemical Margins Under Siege
Over the last five years, Chinese producers have rapidly scaled their export presence in PVC and caustic soda, driving aggressive price competition overseas. Occidental’s management told JPMorgan that Chinese exporters now hold ~30 % of the PVC export market (versus a negligible share in 2020).
That shift squeezes U.S. chemical margins — especially in an era of elevated feedstock (gas + power) costs. Jayaram points out that selling OxyChem now means giving up revenue when margins are near cyclical troughs, but also buying into a tougher forward environment.
Buffett, known for investing in durable, "moatable" assets, must now bet that OxyChem's moat can survive Chinese cost structures. If global supply remains imbalanced, Berkshire may find itself scrambling to defend pricing or investing further on a global scale.
Synergy Or Sinkhole?
If Buffett can bring operational discipline, cross-subsidize with other chemical assets, or integrate upstream feedstocks, he might blunt the China wave. But the risk is that OxyChem becomes a standalone albatross — a high-capex, low-margin business where every price cut from Chinese makers chips away at returns. The more global chemical cycles slump, the more Buffett may be forced to subsidize or restructure.
Investors may want to monitor Chinese export volumes, U.S. PVC margin trends, and whether Berkshire implements radical cost transformation at OxyChem. If global PVC prices plummet, the risks inherent in this deal may come to the surface.
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