PX Capacity Soon to Be in Surplus – New Projects Risky

By Hu Shiming, CNCIC

Prices stay low while profitability recovers

China’s PX capacity reached 13.658 million t/a last year. Output and utilization last year were respectively 9.3 million tons (up 6.9% YoY) and 68.1% (up 4.4 percentage points YoY).
PX prices are closely tied both to naphtha prices and to PX supply-demand. In 2016, PX import prices averaged US$782/t (CFR CMP), down 7.0% YoY, and domestic market prices averaged RMB6 309/t, down 1.4% YoY. The average price rose from RMB5 880/t in January to RMB6 820/t in December, up 16.0%.
Declining crude oil prices have reduced raw material costs and energy costs of petrochemicals, including PX. Yet, PX prices have been stronger than crude oil import prices, and the PX industry’s profits have increased. In the first three quarters of 2016, raw material naphtha prices were only US$300-400/t, so PX producers in China raised their operating rates significantly, reaping high profits, but in the fourth quarter, the growing utilization was dampened by a tight crude oil supply. During January-August 2017, naphtha prices returned to the 2015 level, while the present increase in PX prices was smaller, cutting into PX profits.
Along with the recent rapid expansion in PX capacity, tightness in China’s market is being relieved and PX producers’ bargaining power is expected to weaken.

Consumption keeps growing
& imports hit record high

A growing dependence on imported PX has been driven by ongoing PTA capacity expansion, slow PX capacity expansion and relatively low PX unit utilization. In 2016, China’s apparent PX consumption rose by 6.8% YoY to 21.605 million tons, import volume grew 6.1% YoY to 12.361 million tons, a record high, while export dropped 53.3% YoY to 56 000 tons. Import dependence was 57.0%.
During January-July 2017, China imported 7.768 million tons of PX, up by 8.4% YoY, and the import volume for the whole year of 2017 is projected to reach 13 million tons. But given the pace of PX capacity expansion together with development in the PTA sector, the PX supply/demand gap will narrow, and dependence on imports will shrink. Price war is inevitable. Domestic PTA output will likely reach 40 million t/a by 2020, requiring 26.5 million t/a of PX. Meanwhile, PX production will increase to 15.5 million t/a, still 11 million t/a short of demand, and self-sufficiency will rise to 58.5%. By 2025, PTA production will amount to 47 million t/a with 31 million t/a demand for PX. At the meantime, PX production will increase to 25 million t/a leaving only a 6 million t/a gap, and self-sufficiency will rise to 80.6%. Please refer to Chart 1 for China’s PX supply-demand from 2010 to 2016 and projections for 2025.

PTA oversupply allowed China to become a net exporter

Almost all PX products in China are used for producing PTA. By the end of 2016, China had 48.95 million t/a PTA capacity, up 4.7% YoY, and the sector saw only one new project launched – a 2.2 million t/a unit begun in March by Hanbang Jiangyin. PTA output in 2016 was about 32.5 million tons, up by 4.8% YoY, and the average operating rate of the industry was 66.4%, flat with 2015. Some plants with technical advantages and low costs run at over 90%. PTA import and export were respectively 502 000 tons (down by 33.2% YoY) and 695 000 tons (up by 11.7% YoY), marking China as a net PTA exporter.
Newly built large-scale plants are so competitive that some operators of old units have been forced to shut them down. Over 14 million t/a of capacity is now offline; that’s 1/3 of the total. China now has 32 million t/a of available capacity, closely in balance with demand. But in the middle and long term, the PTA market is likely to develop oversupply. Please refer to Chart 2 for China PTA supply-demand during 2010-2025.

Capacity construction is now speeding up, so investment in new projects is questionable

Construction of PX units is speeding up. Privately owned polyester/PTA companies like Hengli Group, Rongsheng Group and Shenghong Group are implementing backward-integration strategies, expanding upstream presence. They are also accelerating their PX construction: Sinopec has resources and technologies, and its subsidiaries – including Hainan Refinery (2nd phase), Fujian Gulei PC, Jiujiang PC, Tahe Refinery – plan to either build or expand PX capacity. Relying on PetroChina, Guangxi Beibuwan Yangfan, Hebei Jiurui and Jialong Investments are also building up their respective PX capacities.
Construction of the following PX projects is either under way or will start this year: Hengli Refinery’s 4.5 million t/a, Zhejiang PC’s 4 million t/a (1st phase), Shenghong Refinery’s 2.8 million t/a, Rongsheng Group Ningbo Zhongjin PC’s 1.6 million t/a, Sinopec Hainan Refinery’s 1 million t/a and Ningxia Baota Chemical Fiber’s 0.8 million t/a. All these are meant to come on stream during 2018-2021. Meanwhile, Sinopec Jiujiang PC, Tahe Refinery, Fujian Gulei PC, Guangxi Beibuwan Yangfan Energy Chemical, Jichun Group, Hebei Jiurui, Jialong Group, Sinopec Quanzhou PC, North Huajin Chemical Industrial Group, Huadian Coal Industry (coal-based route), Sino Giant PC, Qianhai Group Yihong PC, Huatong Jinggang (Tangshan Caofeidian) Chemical and Fujia Group all contemplate new PX capacity.
Some “teapot” refineries in Shandong are also preparing for PX construction. Eleven PX project applications were included in national plans in March 2017, including Shandong Dongying Lianhe PC’s 2 million t/a, SINOCHEM Hongrun PC’s 0.6 million t/a, Senyue (Wudi) International Energy Chemical’s 0.8 million t/a, Shandong Dongming PC’s 1 million t/a and Rizhao Lanqiao PC’s 1 million t/a. The aggregate will be 10 million t/a.
The combined capacity of PX units now under construction or planned to be built in 2017-2025 exceeds 40 million t/a, and the domestic market will suffer from oversupply if all these actually come on stream. China’s PX capacity will likely exceed 25 million t/a by 2020 and 35 million t/a by 2025. Supply growth is expected to outpace demand growth. Together, feedstock costs and industrial chain integration will be the crux of competition. PX producers need to pay attention all around to avoid risks.