PP Market: Structural Surplus with Structural Shortage

By Gao Liping, China National Chemical Information Center

Demand will maintain
rapid growth

In the past several years, many new polypropylene (PP) units have been constructed in Asia and the Middle East, where an enormous market and cheap raw material exist respectively. Therefore, the global capacity for PP has increased rapidly. Meanwhile, many of the less competitive PP units in Western Europe and North America have been shut down. In 2013, the global capacity for PP was 68 million t/a, up 6.0% year-on-year; the output was 56 million tons; the global average operation rate of PP units was about 82%.
Driven by the thriving coal chemical industry in China, the shale gas boom in the United States and the cheap light hydrocarbon resources in the Middle East, the global capacity for PP will continue to increase in the next few years. It is expected that the global capacity will exceed 78 million t/a by the end of 2015. New capacity will be constructed mainly in China, the United States and the Middle East.
The global consumption of PP in 2013 was about 56 million tons, up 4.0% year-on-year, 0.2 percentage points higher than the year-on-year growth rate in 2012. In the future, with the continued recovery of the world economy and the fast economic growth in many developing countries like China and India, the demand for PP will continue to increase, and the estimated global output in 2015 is over 60 million tons.
Worldwide, PP is mainly used to produce injection-molded products, blow-molded products, fibers, drawn filaments, films, sheets, tubes, etc. The largest application is injection-molding products, accounting for 34% of all consumption; drawn filaments and fibers consume 32%; films and sheets, 24%; other fields, 10%.

Table 1   Major polypropylene producers in China, 2013 (kt/a)

Company    Capacity    Remarks
Sinopec    6 070    36 units use the continuous process, accounting for 93.7% of the total capacity of Sinopec
PetroChina    3 790    22 units use the continuous process, accounting for 93.4% of the total capacity
Shenhua Group    800    Coal-based polyolefins
Zhejiang Shaoxing Sanyuan Petrochemical Co., Ltd.    600    Two 300 kt/a units
Inner Mongolia Datang Duolun Coal Chemical Co., Ltd.    460    Coal-based polyolefins, succeeded in commissioning in March 2012
Formosa Polypropylene (Ningbo) Co., Ltd.    450    Started operation in 2008
Fund Energy Ningbo Co., Ltd.    400    MTO, started operation in 2013
Panjin Ethylene Co., Ltd.    310    
Yan'an Refinery Plant of Shaanxi Yanchang Petroleum Group    300    
CNOOC and Shell Petrochemical Co., Ltd.    260    
Others    2 650    
Total    16 090    




China becomes world's
largest producer

Since the beginning of this century, with the rapid development of China's petrochemical industry, the PP sector in China developed rapidly. Domestic capacity increased from 8.7 million t/a in 2008 to 16.09 million t/a in 2013, with an average annual growth rate of 13.1%. Output reached 12.445 million tons in 2013, making China the largest producer in the world.
At present, most large PP production units in China use imported technologies, while medium-sized and small PP plants use domestically-developed technologies. After rapid development over a decade, a pattern of large, medium-size and small producers coexisting with various production processes, including the bulk gas method, gas method and batch-reactor gas method, has formed.
Currently, there is still a large number of PP production units that use the batch-reactor bulk process, which is used only by Chinese companies. The capacity of these units varies from less than 10 kt/a to several tens of kt/a. This process has advantages like simple process, low investment, short construction period and easy utilization of local propylene resources. However, due to its high consumption of energy and raw materials and its inferior product quality, the process has become less competitive in recent years and has been gradually phased out.
Meanwhile, five companies – Shenhua Baotou Coal Chemical Co., Ltd., Shenhua Ningxia Coal Chemical Co., Ltd., Inner Mongolia Datang Duolun Coal Chemical Co., Ltd., Sinopec Zhongyuan Petrochemical Co., Ltd. and Fund Energy Ningbo Co., Ltd. – use coal-based methanol-to-olefins (MTO) and methanol-to-propylene (MTP) processes to produce raw material polypropylene. Major PP resin producers in China are listed in Table 1.
With the vigorous development of coal-to-chemical projects and propane dehydrogenation (PDH) technology, China’s PP industry has become attractive to investors. According to the statistics, 42 new PP projects are being planned in China, of which 9 are petroleum-based, 28 are coal-based and 5 are PDH projects. And the combined capacity of the 28 coal-based projects is about 64% of the total capacity of the 42 projects. Figure 1 shows the production of PP in China in recent years.

Considerable supply gap exists in the market

In recent years, with the rapid development of China's automotive, appliance, construction and packaging industries, the PP market here has been booming. The apparent domestic consumption increased from 10.08 million tons in 2008 to 15.98 million tons in 2013, with an average annual growth rate of 9.5%. Major application fields of PP in China are woven products, injection-molded products, films, fibers and tubes. These products can be used in industries like packaging, electronics, household appliances, automobiles and construction. Injection-molded products and drawn filaments are the largest applications of PP in China, followed by PP films, while the consumption of PP in fibers is relatively small in China. See Figure 2 for details.
Despite continuous capacity expansion and rapidly increasing output, there is still a considerable supply gap of PP in the Chinese market, and much PP must be imported each year. In 2013, the volume imported to China was 3.593 million tons, down 8.1% year-on-year; the volume exported was only 147 kt.
Major sources of the PP imported to China are South Korea, Saudi Arabia, Taiwan, Singapore, India, United Arab Emirates, Thailand and Japan. In 2013, the volume from these 8 regions was 3.078 million tons, accounting for 85.7% of the total volume of PP imported to China. Figure 3 shows the foreign trade of China’s PP in recent years. From 2005 to 2013, the volume imported from the Middle East and India increased rapidly, that from Taiwan, Japan and Thailand decreased, while that from other regions kept relatively stable.

The proportion of high-end specialty varieties should be increased

Over the past five years, with the development of China's petrochemical industry, a number of large integrated refining-chemical plants have been constructed, increasing both the capacity and output of PP in China, with average annual growth of 13% and 11%, respectively. Meanwhile, the consumption of PP in China also grew rapidly, with an average growth rate of 9.5%. However, there is still an enormous supply gap in China’s PP market, and the net import of PP to China in 2013 was 3.45 million tons. There are two reasons for the large supply gap: domestic capacity is still too small, and most domestic producers can produce only general-purpose PP varieties. High-end specialty PP varieties must be imported. In the future, with the construction of large coal chemical plants and PDH plants, PP capacity will continue to increase rapidly. However, as for general-purpose PP varieties, the market competition will be intensified because on one hand, coal-based PP production units in China mainly produce general-purpose PP varieties like drawn-grade PP; on the other hand, a flood of cheap general-purpose PP varieties from the Middle East will further intensify market competition. In the field of high-end specialty PP varieties, Chinese producers still lag far behind their counterparts in developed countries. Currently, about 70% of the PP imported to China is specialty varieties. Therefore, both structural surplus and structural shortage exist in China’s PP market. To improve competiveness, gain market share and increase profitability, domestic PP producers are urged to put more effort into R&D for high-end specialty PP varieties and decrease the proportion of general-purpose PP varieties in their output.