China’s PPG Market Troubled by Overcapacity and Weak Demand

By Zhang Yue, China National Chemical Information Centre

Polyether polyol (PPG), classified by use into soft-foam and hard-foam types, is an important derivative product of propylene oxide (PO) and is the principal raw material for polyurethane (PU), with 80% of PPG used in making PU products.

Overcapacity

China’s PPG capacity reached 3.42 million t/a in 2014, when PPG output was 2.4 million tons, with an operating rate of 70%. The number of PPG producers exceeded 40 in 2014, and major ones included Sinopec Shanghai Gaoqiao Company, CNOOC and Shell Petrochemicals Co., Ltd., Shandong Bluestar Dongda Chemical Co., Ltd. Capacity is concentrated in eastern China, especially in Shandong. In 2014, eastern China hosted 73% of China’s PPG capacity (Shandong hosts 25%), followed by southern China (12%), northern China (10%) and northeastern China (5%).

Table 1    China’s main PPG producers in 2014

Company    Location    Capacity (kt/a)

Shandong Bluestar Dongda Chemical Co., Ltd.    Eastern China    250
CNOOC and Shell Petrochemicals Co., Ltd.    Southern China    230
Zibo Dexin Lianbang Chemical Industry Co., Ltd.    Eastern China    230
Shandong Longhua Chemical Science Co., Ltd.    Eastern China    200
Sinopec Shanghai Gaoqiao Company, Polyurethane Business Division    Eastern China    180
Changshu Yitong Polyurethane Product Co., Ltd.    Eastern China    170
Jiahua Chemicals Inc.    Eastern China, northeastern China, southern China    160
Guangzhou Yutian Polyurethane Co., Ltd.    Southern China    150
Jiangsu Zhongshan Chemical Co., Ltd.    Eastern China    150
Nanjing Hongbaoli Group Co., Ltd.    Eastern China    150
Jurong Ningwu Chemical Co., Ltd.    Eastern China    150
Others        1 400
Total        3 420



Stable growth of export volume

In 2014, China imported 330 kt (up 6% YoY) of PPG, and exported 441 kt, soaring 34% YoY.
As shown in Figure 1, the import volume of PPG has remained relatively high since 2012, with import prices rising gradually, and export volume has grown year by year, with export prices rising steadily.
Most China-produced PPG is exported to Asian countries. Korea is the largest export market, followed by India, Pakistan, Turkey and Malaysia.

Weak demand

Most of the PPG in China is used to make PU soft foam (subsequently incorporated in mattresses, sofas, garment linings, car seats, etc.) and PU hard foam, which, because of its excellent thermal insulating property, is used in refrigerators, refrigeration housings, containers, heat supply pipelines, roofing, air conditioner pipes, etc. or is used to take the place of wood. China consumed around 2.3 million tons of PPG in 2013, up 5% YoY –– 1.08 million tons of soft-foam PPG (47%), and 880 kt of hard-foam PPG (38%).
In the past two years, overcapacity has troubled manufacturers of PU thermal insulation materials, causing large companies to operate at rates below 50%, and resulting in units idled long-term in small- and medium-sized firms. Prices of domestic building insulation materials slumped in 2014. For example, prices of B1-grade materials in tenders for energy-saving projects in Beijing tumbled from RMB1 700 per cubic meter at the beginning of the year to RMB1 400 per cubic meter in the middle of 2014, and then dropped further to RMB1 100-1 200 per cubic meter by the end of the year. The PPG market sagged due to weak demand.

Decreasing prices

With a downward trend in 2014, domestic prices of soft-foam PPG slid from RMB15 215/t in January to RMB12 277/t in December, averaging RMB13 879/t. By quarters, the prices fell slowly in Q1, plummeted more than RMB1 000/t in Q2 owing to a crash in PO (raw materials of PPG) prices, rebounded in Q3 because of soaring PO prices, and declined in Q4 with PO prices slumping once more.
PPG prices kept decreasing in H1 2015, similar to the situation in H1 2014. Because of low inventories and a tight supply of PO in March, PPG prices rose in that month, but declined again in April dragged down by anemic demand.