China's Propylene Oxide Capacity Has Been Excessive      

Propylene oxide (PO) is the third largest derivative of propylene, exceeded only by polypropylene and acrylonitrile. It is an important basic raw material for the synthesis of organic chemicals and is mainly used for the production of polyether and propylene glycol. It is also a major raw material of nonionic surfactants, oilfield demulsifiers and pesticide emulsifiers.
   Reportedly, the global PO output reached 7.6 million tons in 2009. Dow Chemical is the world's largest PO producer. In recent years, the surging demand for PO in the Asian market has driven the global demand for PO to grow strongly and in turn boosted the soaring global PO capacity. The Asia-Pacific region, especially China and India, has the fastest growing PO capacity and consumption in the world.
   In the 1960s, China began to produce PO. Now China has more than 20 PO manufacturers, with a total capacity of about 1.6 million t/a, of which six have a PO capacity of more than 100 000 t/a each. Among existing PO producers in China, only CNOOC and Shell Petrochemical Co Ltd (CSPC) and Sinopec Zhenhai Refining & Chemical Company use the co-oxidation process (PO/SM), while all others use chlorohydrination processes. The latter is divided into the Dow chlorohydrination process, the Mitsui Toatsu chlorohydrination process, the Asahi chlorohydrination process and the Chinese chlorohydrination process.
   China's PO manufacturers in are mainly distributed in eastern regions. PO is mainly used to produce polyether, while China's polyether manufacturers are also mainly located in eastern China's Yangtze River Delta (including Jiangsu and Zhejiang provinces and Shanghai municipality). In addition, most PO manufacturers have their own polyether production units. Therefore, the regional distribution of PO consumption and the distribution of PO manufacturers are intensively correlated. Overall, major PO suppliers in northern China are Tianjin Dagu Chemical Co Ltd (Dagu Chemical), Jinhua Chlor-Alkali Co Ltd, Shandong Befar Group Co Ltd, Shenyang G-billow Chemical Co Ltd and Shandong Shida Shenghua Chemical Group; major PO suppliers in southern China are CSPC and some PO importers; and major PO suppliers in eastern China are Jiangsu GPRO Group Co Ltd (GPRO), Zhongshan Chemical Co Ltd, CSPC and some PO importers.
   In the next few years, new PO capacity of about 300 000 t/a will be put into production in China. New PO projects under construction or in planning include Dagu Chemical's 10 000 t/a project, Everthriving Investment Group's 90 000 t/a project, and Sinochem Corporation's 300 000 t/a unit at its Shandong Zibo Chemical New Materials Base. Once these new PO project are put into production, China's PO market will show overcapacity, and the domestic market competition will become increasingly more intense. By then, China's PO producers will have to enter international markets to struggle for a market share of the global PO market of more than 8 million tons per year.
   In the past ten years, the demand for PO in China has increased significantly year by year. The market demand for PO in China was 370 000 tons in 2001, 620 000 tons in 2004 and 1.3 million tons in 2009. It is predicted to reach about 1.42 million tons in 2010. From 2001 to 2009, it grew by 253%.
   The soaring demand for PO has driven rapid growth in China's PO capacity. In 2001, China's PO capacity was 480 000 t/a. It reached 560 000 t/a in 2004, 950 000 t/a in 2006 and 1.2 million t/a in 2008. As of the end of 2010, it will reach 1.6 million t/a. From 2001 to 2010, China's PO capacity grew by 230%. Especially, from 2004 to 2009, China's PO capacity doubled, growing by 700 000 t/a.
   Since 2003, driven by downstream industries, China's PO output and equivalent apparent consumption have grown rapidly. But in 2008, especially in the third quarter of the year, due to the outbreak of the financial crisis and a sharp drop in oil prices, the demand for polyether polyols and polyester in China went down gradually, leading to an oversupply of PO in China. In 2009, the apparent consumption of PO in China began to recover rapidly, leading to a shortage of PO.
   In 2010, the total demand for PO in China is estimated to reach 1.48 million tons, and China's total PO capacity will be about 1.6 million t/a. Thus, the supply and demand of PO in China will basically reach balance. Overcapacity will not be large. But with the enforcement of stricter environmental policies in China, most of chlorohydrination-process-based PO producers, especially smaller ones, will face enormous environmental protection pressure. In this situation, the operating rate of the producers is not high although the capacity is not very excessive. In 2010, China's PO import volume is still rising rapidly. Therefore, optimizing their existing PO production processes as soon as possible is the priority problem that Chinese PO producers should address.


   In 2009, China's consumption of PO was about 1.305 million tons, mainly for the production of polyether polyols. Polyether is the largest consumer of PO. Its consumption of PO accounts for nearly 80% of China's total. So in China, the places where polyether manufacturers are concentrated are also the biggest consuming areas of PO. Polyether manufacturers in China are mainly concentrated in eastern regions. In the Yangtze River Delta, there are many polyether manufacturers. Some of these do not produce PO themselves at all and need to purchase PO from the market. Some have small PO units, but their PO capacity cannot meet their demand, so they also need to purchase a large amount of PO. In northern China and northeastern China, there are also some polyether manufacturers. They also need to consume a certain amount of PO. But their consumption of PO is much smaller than that in eastern area.
   Overall, in recent years, due to the construction of new PO plants and expansion of existing PO capacity, China has gradually achieved self sufficiency in PO supply. Because of backward production technology and serious pollution, China's older PO units will be gradually replaced by new ones. Before 2003, China's PO import volume was not large, but China's import volume of polyether and polyurethane, which are the downstream products of PO, was huge. However, this situation has changed since 2003. With the growth of the demand, China's PO import volume began to soar. It increased from 53 000 tons in 2002 to 116 000 tons in 2003 and to 191 000 tons in 2004. From 2005 to 2007, as a large amount of new PO capacity was put into production, China's PO import volume declined gradually and was about 120 000 to l50 000 tons a year. In 2009, it grew rapidly to 255 000 tons. Because the short supply of PO and the insufficient investment in R&D, downstream products such as polyether polyols and nonionic surfactants in China are mainly dependent on imports. Every year, China imports large amounts of these downstream products. Their import volume increases year by year.
   China mainly imports PO from Japan, Singapore and the United States. Jiangsu, Zhejiang, and Shandong provinces and Shanghai municipality are major importers of PO. China's PO volume exported is still relatively small.
   In summary, China's PO capacity has been in slight surplus. Therefore, strengthening the development of the downstream products to boost the demand for PO is now the development direction of China's PO industry. In addition, with the enforcement of stricter environmental protection policies in China, the chlorohydrination process will be phased out. Therefore, PO producers should actively upgrade their existing PO production processes