Polyolefin Sector Cultivates Internal Strength to Cope with Challenges

By Li Hanchu, South China Branch of Sinopec Chemical Commercial Holding Co., Ltd.

Naphtha-to-olefin faces multiple challenges

Petroleum, coal and natural gas all can be used to produce ethylene/propylene. For a long time, China’s ethylene/propylene producers have mainly used the petroleum route. In recent years, China’s mix of energy consumption has faced great challenges. Capacity expansion in the Middle East, the shale gas revolution in the United States as well as the rapid rise of the domestic coal chemical sector will all have great impacts on China’s naphtha-to-olefin sector.
The production of ethylene / propylene using naphtha as raw material is relatively mature in technology with a higher comprehensive utilization rate, and has been used as the main production route for olefins. With the rapid development of coal-methanol-olefin and alkane dehydrogenation to make olefin, naphtha-to-olefin will need a more optimized structure to face future opportunities and challenges.
China’s ethylene industry has developed drastically, making China second only to the United States as the largest ethylene producer in the world. In 2013, China’s capacity, output and apparent consumption of ethylene reached 18.08 million t/a, 16.17 million tons and 17.87 million tons, respectively, and the domestic capacity, output and apparent consumption of propylene was 20.82 million t/a, 19.0265 million tons and 21.6665 million tons, respectively. With the accelerated construction of large-scale units in China’s petroleum industry, the scale of units has expanded constantly and the self-sufficiency rate of consumption has gradually increased. It is expected that by 2015, China’s capacity to make ethylene and propylene will reach around 27.0 million t/a and around 24.0 million t/a, respectively. However, the external competitive pressures will also increase, and the further development of ethylene raw materials toward light weight and diversification is the general trend.
In recent years, China’s coal chemical sector has developed rapidly, as has the coal-to-olefin in particular. China’s methanol-to-olefin projects that were completed and put into operation in 2013 included a 200 kt/a project of Sinopec Zhongyuan Petrochemical Co., Ltd. and a 600 kt/a project of Ningbo Heyuan Chemical Co., Ltd. At the same time, many other units have been under construction in China. With the constant rise of oil prices, the coal-to-olefin process route has cost advantages compared with the ethylene process route using naphtha cracking, and it will have a certain impact on the use of naptha.

Demand for polyolefin will increase continually

In 2013, China’s apparent consumption of polypropylene (PP) was 17.212 million tons, up 6.4% year-on-year. The domestic apparent consumption of polyethylene (PE) reached around 20.35 million tons, up 13% year-on-year, of which the consumption of HDPE (high density polyethylene) was still the largest and reached 8.60 million tons, accounting for 42.27% of the total demand. LDPE (low density polyethylene), and LLDPE (linear low density polyethylene) came next. See Figure 1 and Figure 2 for detail.
In 2014, with the economy of the United States tending toward full recovery, the European debt crisis taking a turn for the better, the constant prosperity of Asia Pacific’s emerging economies and the adjustment of China’s economic structure, it is expected that China’s demand for PP and PE will continue to grow at around 7% annually, and the apparent annual consumption of PE and PP may reach around 21.73 million tons and 18.41 million tons, respectively.

Profit analysis of the sector

With the rapid growth of demand for plastic products, the polyolefin sector has developed rapidly, and the requirements for environmental protection and quality have tightened gradually. Facing the high cost of raw materials, the domestic sectors like coal-to-olefin, methanol-to-olefin and propane-to-olefin has risen rapidly, these products have a low cost of raw materials and gradually become the new favorites of the market. However, the capacity to make olefins using naphtha as raw material still accounts for more than 90% of the total. The profits of naphtha as well as coal to olefin, methanol-to-olefin and propane-to-olefin are worth attention.

Table 1  Cost and profit comparison of two PE process routes

Process    Price of raw  material    Cost price of  LLDPE    
Ex-factory price of  LLDPE    Profit
Methanol-to-olefin    6 680    9 330    10 900    1 570
Naphtha-to-olefin    7 279    10 570    11 000    430
Note: The above data were taken on March 14, 2014. The ex-factory price of LLDPE using the methanol-to-olefin process took 7402 of Shenhua Group as benchmark, and the ex-factory price of LLDPE using naphtha-to-olefin process took 7042 of Sinopec Yangzi Petrochemical Co., Ltd. as benchmark.


Table 2   Cost and profit comparison of two PP process routes

Process    Price of raw material    Cost price of PP    
Ex-factory price of PP    Profit
Methanol-to-olefin    2 450    10 180    10 650    470
Naphtha-to-olefin    6 675    11 141    10 690    -451
Note: The above data were taken on March 14, 2014. The ex-factory price of PP using methanol-to-olefin process took T30S of Ningbo Heyuan Chemical Co., Ltd. as benchmark, and the ex-factory price of PP using naphtha-to-olefin process took the average price of oriented PP in Sinopec as benchmark.


During 2011-2012, producing PE from petroleum in China has been a losing proposition. In 2012, the average annual losses were around RMB880 per ton of PE. In 2013, the profitability improved considerably, and according to statistics, the average annual profit was around RMB332 per ton of PE. However, with the development of the sector, the competitive pressure also increased, especially from the rapidly rising methanol-to-olefin sector with its lower cost, which had readily apparent impact on the traditional naphtha-to-olefin sector. The cost and profit comparison of two PE process routes is listed in Table 1.
By contrast, the profit of naphtha-to-PE (linear) was RMB1 140/t lower than that of methanol-to-PE (linear). However, the production process as well as product quality of methanol-to-PE are slightly inferior, so its market share is relatively small. As of 2013, methanol-to-PE capacity accounted for only 4.2% of the total.
In 2012, the production of PP using the petroleum route suffered big losses, and the average annual losses were around RMB629 per ton of PP. In 2013, the profitability improved considerably, and according to the statistics, the average annual losses were around RMB12 per ton of PP. However, with the development of the sector, the competitive pressure also increased, especially in the rapid rise of coal-to-olefin, methanol-to-olefin and propane-to-olefin sectors, which had apparent impacts on the traditional naphtha-to-olefin sector. The cost and profit comparison of two PP process routes is shown in Table 2.
Considering only the accounting of olefin cost, the cost of methanol-to-olefin was RMB470/t lower than that of naphtha-to-olefin. To take PP as an example, the quoted price of PP using methanol-to-PP process is usually RMB50-150/t lower than that of PP using naphtha-to-olefin process. According to the price difference, it is roughly estimated that the profit of methanol-to-PP is at least RMB500-1 000/t higher than that of naphtha-to-PP.


Table 3  China’s self-sufficiency rate of some high-end PE products in 2013 (%)

PE variety    Self-sufficiency rate
LLDPE    Rotational molding material            1
LDPE    Coating material                    65
        High-voltage power cable material    0
HDPE    Automobile fuel tanks                1
        Gas pipe                            15


Table 4  China’s self-sufficiency rate of some high-end PP products in 2013 (%)

PP variety    Self-sufficiency rate
Pipe material    PP R                                                        40
                PP B as well as others                                        70
Coating material                                                            22
Injection molding    High-impact     Special material for bottle caps        40
                                   PP for automobiles                        60
                                   Special material for washing machines    50
                    High transparent    PP for medical uses                    40
                                        High transparent daily necessities    50
                                        Others                                50



High-end products have good development prospects

1. PE
With the development of the sector, the saturation of the market has gradually increased, and the industrial characteristics of more general-purpose materials and less special materials have also been very obvious. To take PE variety as an example, the demand for general-purpose plastics accounts for around 76% of the total. From the view of domestic self-sufficiency, in 2013, the domestic self-sufficiency rate of PE general-purpose materials was around 60%. However, the domestic self-sufficiency rate of special materials was lower, for example, the self-sufficiency rate of special materials for gas pipe was around 15%, and more than 90% of materials for automobile fuel tanks and rotational molding were dependent on imports. China’s self-sufficiency rate of some high-end PE products in 2013 is listed in Table 3.
From the view of profit, the average profit difference between general-purpose materials and special materials was around RMB700/t during 2013-March 2014.
In considering the self-sufficiency rate and profit rate, the high-end special material sector will have a certain development space, and the R&D of high-end special materials has become the development trend of the sector. In recent years, some petrochemical enterprises have competed with each other to conduct the R&D of high-end special materials for different purposes. The high-end special material sector will attract the attention of more players.
2. PP
At present, the usage of general-purpose materials is basically saturated, and the profit and added value of low-end PP products are weak. To cope with the rapid rise of coal-to-olefin enterprises as well as the impacts of the imported products from the Middle East, the domestic petrochemical enterprises are actively seeking new development directions. Players should adjust their product portfolios according to the development direction of low carbon, energy saving and environmental protection, to upgrade the existing products and optimize the product portfolio, especially mainly producing high and medium-end products like ice washing material, pipe material, medical material and automobile material, etc. China’s self-sufficiency rate of some high-end PP products in 2013 is shown in Table 4.
In PP material market, the profit of PP pipe materials (PP R and other pipe materials) is the highest, reaching RMB1 100/t. The high profit fields are mainly concentrated in the injection molding, high-impact and high transparency sectors with a profit of around RMB600-1 000/t, while the profit rate of ordinary drawing materials, film materials and fibers is the lowest. The PP materials with a high added value and good market development space are listed in Table 5.


Table 5   PP materials with a high added value and good market development space

    Downstream sector     Classes of raw materials    Remarks
Injection molding    PP for automobiles    K9016, etc.     
For convenient transportation domestic raw materials are preferred
　　Special material for washing machines    K7926/K7726H,M1600 and JM370K, etc.
Tends to purchase imported raw materials from LG and Samsung Total, etc.
    Special material for bottle caps    YPJ706, etc.     
Bottle caps of carbonated drinks mostly use PP raw materials.
    Transparent PP for medical uses    K4818 and R370Y    
Mostly depends on imports
    High transparent daily necessities    K4912 and R301, etc.     
Mostly depends on imports
Pipe
material    PP R pipe material    4220 and PA14D, etc.     
High-end products mainly from Northern Europe, medium-end products mainly from Korea, and low-end products mainly domestic PP
    PP B as well as other pipematerials    B8101, etc.    
Being mainly domestic raw materials
    Coating material    H2800, etc.    
Being mainly imported raw materials
    c-PP    C4608,C1608,6612, 6341,HD642, HF400, HF420 and H3400
Being mainly imported raw materials


Conclusion

At present, the domestic coal-to-olefin sector, with its low cost and high profit advantages, is still developing rapidly; however, due to its defective production process, the products are mainly low-end materials. The polyolefin products have mainly developed toward high and medium-end products, the production processes like crude oil-to-olefin still have advantages; however, due to its relatively high cost, it is suggested that domestic enterprises should produce more competitive products with high added value. Uses of PP are mainly in injection molding, pipe materials, coating materials, fibers and films, while uses of PE are mainly in gas pipe materials, rotational molding materials, automobile fuel tank and high-voltage power cable materials.