PP: Price War Imminent – How Can Players Survive?

By Tan Jie, Research Institute of Sinopec Maoming Petrochemical Co., Ltd.

With the constant improvement and maturing of methanol-to-olefin (MTO) technology in recent years, many enterprises use MTO technology to produce ethylene and propylene with coal as raw material in regions of Northwest China that are rich with coal resources, such as Ningxia, Shannxi and Xinjiang, and proceed to produce PP from propylene. Moreover, development of the propane dehydration (PDH) technology has accelerated expansion of PP production, downstream. By the end of August 2017, China’s PP capacity had reached 23.09 million t/a.

Raw material sources diversify

The main PP production processes used in China today are the loop process developed in China, the Spheripol process from Basell, the Unipol process from Dow and the Novolen vapor-phase process from BASF. These processes account for over 70% of the national total. The loop process, developed in China, accounts for around 24% of the national capacity.
In addition to traditional sources such as propylene (a byproduct of ethylene units and refineries), development of PDH technology has diversified propylene sources. The contribution of PP produced through the traditional petroleum route has declined. New PP units constructed in the last two years in particular generally use coal (or purchased methanol) as raw material. The proportion of coal-based PP capacity in the national total exceeds 30%.
The increase of new PP projects using coal (or purchased methanol) as raw material has changed the previous situation of PP being made exclusively in petrochemical enterprises. The PP production structure in China has changed considerably. The capacity proportion of Sinopec and PetroChina declines constantly. Shenhua Ningxia Coal Industry Group Chemical Co., Ltd. is now the biggest PP producer, with 1.58 million t/a capacity, around 6.84% of the national total.
New PP units constructed during 2015-2017 are concentrated mainly in regions rich with coal resources such as Inner Mongolia, Xinjiang, Ningxia and Qinghai. The new capacity in these regions accounts for around 50% of all new capacity. There are also major new units in East China and South China. The new capacity in East China accounts for around 35% of all new capacity. The new capacity in South China accounts for around 15% of new capacity.

Special needs must still be satisfied by great quantities of imported PP

The PP industry in China developed rapidly in recent years, but output still fails to meet industrial demand, and great quantities have to be imported each year. According to customs, 3.0175 million tons was imported in 2016, a drop of around 11.17% from the previous year. During January-June 2017, the import amount was 1.6117 million tons, a YoY increase of around 13.25%. On the other hand, small amounts of PP are exported – 239.7 kt in 2016, a YoY increase of around 44.05%. During January-June 2017, 173.7 kt was exported, a YoY increase of around 29.24%.
PP demand in China has increased steadily in recent years, going up to 21.2745 million tons in 2016, a YoY increase of around 5.87%. In China, PP is used mainly to produce woven products, films, injection-molded products and textiles. Such products are used extensively in making packaging, electronics/household electrics, automobiles, fibers and construction pipes. The biggest consumption of PP today is in the woven products sector, including woven bags, baling bags and bundling ropes, accountings for around 30% of the total. General-purpose PP is mainly used. The second consumption sector is injection-molded products, especially washing machine and automobile components. Specialty PP is mainly used, and such materials are mostly imported. Consumption in the sector accounts for around 27% of the total. Another major consumption sector is film products, accounting for around 24% of the total. In film products, PP is mainly used in BOPP films, and such consumption accounts for around 19% of the total.

Development trends

PP capacity will keep increasing. In the next few years, China will construct or expand quite a few PP units, mainly including a 750 kt/a refining/chemical integrated project of China-Kuwait Guangdong Refining & Chemical Co., Ltd., a 150 kt/a unit of Yunnan Yuntianhua Co., Ltd., a second-phase 300 kt/a unit of Jiutai Group Inner Mongolia Co., Ltd., a 200 kt/a unit of Gansu Huating Coal Industry Group Co., Ltd., a 600 kt/a coal/oil/gas resources comprehensive utilization project in Yanan of Shaanxi, a second-phase 400 kt/a unit of Ningbo Fuji Petrochemical Co., Ltd., a 170 kt/a unit of Jiangsu Pengcheng Chemical Industry Co., Ltd., a 600 kt/a unit of Tianjin Bohua Chemical Development Co., Ltd., a second-phase 400 kt/a unit of CNOOC Huizhou Refinery, a first-phase 300 kt/a refining/chemical integrated project of Fujian Gulei Petrochemical Co., Ltd., an 800 kt/a refining/chemical integrated project of Hebei Xinhua United Petrochemical Co., Ltd., a 300 kt/a refining/chemical integrated project of Dalian Hengli Petrochemical Co., Ltd., a second-phase 300 kt/a unit of Shaanxi Yanchang Coal Yulin Energy & Chemical Co., Ltd., a 900 kt/a refining/chemical integrated project of Zhejiang Petrochemical Co., Ltd., a 250 kt/a refining/chemical integrated project of Hebei Yihong Petrochemical Co., Ltd., a 200 kt/a unit of Shaanxi Yulin Fugu County Hengyuan Coal/Coke/Power/Chemical Co., Ltd., a 300 kt/a unit of Anhui Hainan Zhongan United Coal Chemical Co., Ltd., a 400 kt/a unit of Qinghai Geology & Mining Group Co., Ltd., a 300 kt/a unit of Gansu Pingliang Huahong Huijin Coal Chemical Co., Ltd., a 300 kt/a unit of Henan Hebi Petrochemical Co., Ltd., a 300 kt/a unit of Guizhou Biji Zhijin Petrochemical Co., Ltd., a SPIC-Total 400 kt/a unit jointly funded by State Power Investment Corporation and Total of Erdos of Inner Mongolia, a 300 kt/a unit funded by Mengda New Energy & Chemical Co., Ltd. of Yili of Xinjiang, a 300 kt/a unit of Zhejiang Satellite Energy Co., Ltd., a 250 kt/a unit of Yanchang Petroleum Yanan Energy & Chemical Co., Ltd. and a 400 kt/a unit of Shanxi Coking Coal Group Feihong Chemical Co., Ltd. It is expected that a total capacity of PP in China will exceed 30 million t/a in 2021.
In the next few years, the PP industry in China will have huge development opportunities, and other opportunities brought by new industrialization, informatization, urbanization and agricultural modernization. The development of lightweight automobiles, energy conservation, environmental protection and track communication will promote demand for plastics in communication. Extensive application of PP in agricultural greenhouse films, packaging plastic products and medical apparatuses, will also increase demand for PP. Demand for PP is likely to reach 23.0-23.5 million tons by 2021. Consumption sectors will basically remain unchanged. The market share held by woven products will decline gradually however. The proportion held by injection-molded products, fiber products and pipe materials will grow and promote a rapid increase of PP demand in China. High-transparency PP varieties, spun-bonded nonwoven fabrics, melt-blown nonwoven fabrics, fine denier/superfine denier PP fibers, household electrics special materials and automobile special materials will be focuses of development.
As CTO and PDH projects face various uncertainties such as the sustained low price of crude oil, more stringent environmental protection regulations and slow economy rehabilitation, both at home and abroad, the completion rate of CTO and PDH projects is expected to be a decisive factor for the capacity and the self-sufficiency of PP in China. The production of propylene from coal and, in turn, the production of PP will still be an important driver of the growth of PP capacity. New PP units will still be mainly concentrated in central and western regions.
General-purpose materials are already in serious surplus in China. Despite the constant increase of the PP output, high-end products still must be imported in great quantities. With the sustained expansion of the supply of low-end products and the pressure of competition brought by products imported from the Middle East at low prices, market competition will become fiercer. Measures should therefore be taken to gradually eliminate outdated capacity, raise the overall scale and technology level, adjust the product structure, increase the production of high-grade brands and special materials, upgrade the overall technical content and accelerate the development and production of highly crystalline high-rigidity products, high-speed tensile BOPP films, hot-seal films, high-transparency packaging and blow-molded films, high-impact products and thin-wall injection-molded special materials in combination with needs in the development of the automotive and construction sectors and improvement of the standard of living.