Supply/Demand Analysis of China's Aromatic Hydrocarbons and Polyester Market

By Luo Hongjing, the Economics and Development Research Institute of Sinopec Group


1. Supply/demand and prospects of domestic aromatic hydrocarbon-polyester market

1.1 China’s supply and demand for polyester fibers will grow steadily in 2014
During 2010-2011, the financial prospects of China’s polyester fiber sector improved considerably, and enterprises’ investment motivation for expanding and constructing polyester fiber units was stimulated, so the average annual growth of new capacity in the domestic polyester fiber sector reached around 3.6 million t/a in the following 2-3 years. As of 2013, China’s effective capacity to make polyester fibers reached 42.2 million t/a, and it will further increase to around 45.0 million t/a in 2014. See Figure 1 for detail.
After two years of high income, the polyester fiber sector entered a situation of meager profit and losses beginning in 2012. In 2013, the number of unprofitable enterprises increased further, enterprises generally faced difficulties in product sales, and China’s growth of output as well as consumption reduced notably from 12% in 2012 to 6%-7%.
Based on investment in the sector, the retail and exports of textiles and clothing, and the cotton market, it is expected that China’s supply and demand of polyester fibers will maintain a steady growth in 2014, but due to poor financial results, the growth of output will be slightly slower than in 2013. However, influenced by export and improved demand for substitutes, the growth of consumption will be slightly faster than in 2013. The smooth operation of the polyester fiber sector will offer a support for the stable growth of the upstream aromatic hydrocarbons and polyester sector.
1.2 Supply and demand of polyester will return to normal growth
During 2011-2012, China’s newly added capacity to make polyester was close to 10.0 million t/a, being equivalent to 1.9 times the demand growth in the same period, and especially in 2012, the drastic growth of capacity made the domestic polyester sector suffer losses. In addition, the actual capacity growth of polyester slowed down during 2013-2014. As of the end of 2013, China’s effective capacity to make polyester reached around 41.5 million t/a, up 7.5% year-on-year, and the growth being 11 percentage points lower than that in the same period of 2012. Due to the drastic decrease of enterprises’ profitability, the operating rates of enterprises were reduced significantly, and China’s output of polyester was around 31.5 million tons in 2013, up only around 5% year-on-year, and the growth was 50% lower than that in 2012. With the gradual improvement of the international economic environment, the net export volume of polyester climbed dramatically and was expected to reach 1.75 million tons, up 51% year-on-year. The domestic apparent consumption of polyester was 29.75 million tons in 2013, a year-on-year growth of only 3.2%.
In 2014, due to the low profit level of sector, the newly added effective capacity will still be less, it is expected that China’s capacity to make polyester will climb to 44.0 million t/a, and the growth of capacity was further reduced to 6%. However, driven by the demand from new polyester fiber units downstream, it is expected that China’s output and consumption of polyester will reach 33.8 million tons and 32.0 million tons, respectively, up 7.3% and 7.6% year-on-year.
In the past two years, with the drastic startup of new bottle-grade polyester units, the capacity to make non-fiber polyester nearly doubled, rising drastically from 5.3 million t/a in 2011 to 9.87 million t/a in 2014. Affected by the boom in supply, the operating rate and profit level of domestic bottle-grade polyester units dropped drastically.
The drastic startup of new bottle-grade polyester units in China also made the supply of recycled polyester fiber raw material increase considerably, with great negative impact on newly-constructed polyester spinning units.
1.3 China’s capacity to make PTA is in serious surplus, and it is difficult to change this situation in the short term
In recent years, the complete sets of China-made PTA (purified terephthalic acid) technology and equipment broke some technical barriers in the development of the sector, and then the entry of a large number of private enterprises accelerated the development of the sector. The large-scale and centralized production of new enterprises and units has given the domestic PTA sector regional surplus and develop further toward overall surplus.
During 2011-2013, the domestic PTA sector experienced a peak and a low. On one hand, China’s capacity to produce PTA climbed rapidly from 19.32 million t/a to 32.9 million t/a, up 70%; on the other hand, the price of PTA dropped from the high level of RMB11 600 per ton to RMB7 300 per ton by the end of 2013. The overcapacity and the substantial reduction of the benefit show that the PTA sector has entered a trough. During the same period, China’s consumption of PTA rose from 23.4 million tons to 27.2 million tons, and the year-on-year growth slowed.

Table 1   Capacity for Non-fiber Polyester in China (kt/a)

Producer    Capacity    Startup time
Zhejiang Wankai New Materials Co., Ltd.    400    2012
Guangdong Taibao Polymer Co., Ltd.    400    2012-2013
Jiangsu Hengli?Chemical Fibre Co., Ltd.    1 200    2012-2014
China Resources (Holdings) Co., Ltd.    900    2012-2013
Sinopec Yizheng Chemical Fiber Co., Ltd.    200    2013
Hainan Yisheng Petrochemical?Co., Ltd.    1 000    2013
XiangLu Chemical Fiber Co., Ltd.    600    2014
Far Eastern Industries (Shanghai) Ltd.    700    2014
Others    4 470    
Total    9 870    

Table 2   Capacity of China’s major PTA producers during 2012-2014 (kt/a)

Producer    2012    2013    2014
Sinopec    3 120    3 120    5 120
PetroChina    880    880    880
Xianglu Petrochemicals Co., Ltd.    1 500    4 500    6 000
Zhuhai Biyang?Chemical Co., Ltd.    1 680    1 680    2 930
Zhejiang Far Eastern Petrochemical Co., Ltd.    3 200    3 200    3 200
Ningbo Yisheng Petrochemical Co., Ltd.    3 400    3 400    5 600
Oriental Petrochemical (Shanghai) Corporation    600    720    720
Ningbo Mitsubishi Chemical Co., Ltd.    600    600    600
Formosa Chemicals & Fibre Corporation    800    800    800
Yisheng Dahua Petrochemical Co., Ltd.    5 200    5 200    5 200
Chongqing?Pengwei?Petrochemical Co., Ltd.    900    900    1 200
Shishi Jialong Petrochemical Fiber Co., Ltd.    600    600    600
Hainan Yisheng Petrochemical?Co., Ltd.    2 100    2 100    2 100
Jiangsu Sanfangxiang Group Co., Ltd.    1 200    1 200    1 200
Zhejiang Tongkun Group    1 500    1 500    1 500
Hengli Petrochemical (Dalian) Co., Ltd.    2 200    2 200    4 400
Jiangsu Hanbang Petrochemical Co., Ltd.    600    600    600
Sichuan Shengda Chemical New Material Co., Ltd.    -    -    1 000
Xinjiang Zhongtai Kunyu New Material Co., Ltd.    -    -    1 200
Jiangsu Yalu Petrochemical Co., Ltd.    -    -    1 200
Jiangsu Ganghong Petrochemical Co., Ltd.    -    -    1 500
National total capacity     30 080    30 200    47 550
Consumption of PTA (kt)    26 030    24 570    28 000

In spite of this, according to the progress of construction projects, new capacity of around 15.0 million t/a will be put into operation this year, and China’s total capacity will reach 47.55 million t/a by the end of 2014. Considering the startup time of units, the growth of the effective supply will be less than that. However, the huge capacity will still place enormous pressure on the market.
Since 2013, domestic PTA enterprises have used more flexible means to arrange their production. They have adjusted production by using the methods like temporary shutdown and increase of maintenance time to adapt to the market. In 2014, the flexible production mode will continue to be used, and it is expected that the operating rate of operated units will be still higher, but the number of units being shut down will also increase.
Driven by polyester production downstream, it is expected that the consumption of PTA will reach 29.4 million tons in 2014, up around 8% year-on-year. With the rapid growth of the domestic supply, the import volume will shrink continually. It is expected that the net import volume of PTA will reduce to 1.0 million tons in the whole year of 2014, but the domestic capacity will be much higher than the demand, and overcapacity will be further aggravated.
1.4 China’s supply of PX increases drastically and the supply gap remains high
In 2013, China’s output of PX (para-xylene) was around 7.59 million tons, down 2% year-on-year. The main reason for the decline was that the output of PX from Sinopec, CNOOC and Qingdao Lidong Chemical Co., Ltd. was reduced somewhat. In 2013, China’s import volume of PX reached 9.05 million tons, the export volume was 180 kt and the apparent consumption reached 16.46 million tons, up 19% year-on-year.
This year, with the increase of operating rates in new units, China’s effective PX operating rate will climb. It is expected that China’s output of PX will reach 9.8 million tons, up nearly 30%, the consumption of PX in downstream PTA production will reach 18.8 million tons, up 14% year-on-year, and the supply gap will grow slightly.
In 2014, with the startup of new PX units in the neighboring countries like Korea, India and Singapore, their exports to China will expand, and domestic market competition of PX will be fiercer.

2. Trend of prices and margin

In 2013, China’s prices of aromatic hydrocarbon-polyester chain products decreased by around 5%. However, compared with 2012, prices decreased as can be seen in Figure 2, except for PX with expanded price reduction. It is expected that in 2014, the prices of major polyester raw materials will continue to decrease. Because of the greatly increased supply of PX, it is expected that the PX price will drop slightly more than those of PTA and polyester.
In 2013, PTA, the polyester and polyester fiber sectors suffered losses, and the profit space of PX was slightly narrowed. In 2014, the prices of crude oil and naphtha in the international market will reduce considerably, and affected by the significant supply growth, the price of hydrocarbon-polyester products will possibly fall slightly more than that of raw materials. The gross margin of PX will be greatly narrowed compared with 2013. See Figure 3 for detail. PTA sector will still suffer losses and this situation will not change fundamentally in the short term. The supply/demand status of polyester will improve considerably, the gross margin of polyester may improve slightly, but the polyester sector will still suffer losses.                                                  ?