By Chen Danjiang
Capacities’ start-up peak likely to emerge in 2019
China’s polypropylene (PP) capacity kept rising during 2014-2018, with the fastest expansion pace seen from the coal-to-olefin (CTO) sector. New PP capacities, expected to total 2.95 million t/a, are likely to brace for their peak season of start-up in 2019.
Domestic PP capacities reached 22.51 million t/a in 2018, with 1 million t/a of new capacities. So far in 2019, the capacities have risen to 22.96 million t/a, as Hengli Petrochemical (Dalian) successfully started up its 450 kt/a plant, while Jiutai Energy and Grand Resource are expected to launch production in June.
By May 2019, Sinopec and PetroChina have a combined PP capacities of 11.08 million t/a, accounting for 51% of the domestic total. The two petrochemical gaints have been adopting the traditional olefin production process, using naphtha as a major feedstock. Coal chemical producers have 6.37 million t/a of PP capacities, occupyinig 27% of the domestic total. CTO plants are expected to cover 49% of the new plants due to start up in 2019.
In terms of regional capacity distribution, PP capacities in northwest China were 7.26 million t/a, taking a share of 32%. The increase in PP capacities is mainly attributed to the plants’ start-up at coal chemical producers in northwest China. Shenhua Ningxia Coal Industry’s 300 kt/a No 6 PP line came on stream in January 2018. Yanchang Petroleum Yan’an Energy Chemical carried out a successful test run at its 300 kt/a PP plant in September. East China had 4.3 million t/a of PP capacities, accounting for 19% of the domestic total. The capacity increase in the region is mainly from propylene dehydrogenation (PDH) and outsourced methanol-to-olefin (MTO) sector. North China had 3.09 millon t/a of PP capacities, covering 14% of the domestic total. The share of northeast China, central China and southwest China is expected to fall gradually, due to slow capacity growth pace.
In terms of feedstock, naphtha-based PP capacities were 12.54 million t/a, accounting for 58% of the domestic total. The ratio will decrease in the future as there are limited new naphtha-based PP plants built up in recent years. Coal-based PP capacities reached 4.87 million t/a, covering 22% of the total and the share is expected to increase rapidly. The PDH process took up only 7% of the domestic PP capacities, but its margins are sound and thus have a bright development potential. Outsourced methanol and propylene both took up a small share.
Product structure linking closer with international consumption structure
On the consumption side, PP yarn won the first rankng in domestic PP consumption in 2018, occupying 36.43%, followed by copolymer injection at 20.43%, fiber at 11.47%, homopolymer injection at 11.37% and BOPP, 8.07%, pipe, 4.31%, CPP, 1.91% and other special materials, 2.54%.
PP yarn is mainly used in plastic woven and film industries. Yarn consumption has been growing but its consumption ratio has been dropping due to slowing demand from the plastic woven sector.
The consumption share of film showed a mixed trend. BOPP film posted consecutive falls, down to 8.07% in 2018 from 9.1% in 2017. This is because some materials were replaced by lower-priced coal-chemical products, with the development of the coal chemical industry. The consumption ratio of CPP rose from 1.58% in 2017 to 1.91% in 2018, but there remains a supply gap of high-end product. However, due to the slow development and research of new PP products in China, the overall consumption proportion of the film industry is relatively stable.
PP injection and fiber sustsain growth in consumption, with more obvious gains seen in the fiber sector, rising from 11.09% in 2017 to 11.47% in 2018. Non-woven fabrics is the major downstream industry of PP fiber, directly used in maternal and child products and medical supplies, which have become a new force in recent years, boosted by China’s two-child policy and the progress of medical level. Their consumption volume is considerable. Demand for homopolymer PP injection from the downstream daily necessities or small appliances sectors increased significantly, with domestic and imported materials evenly divided in consumption. Dometic materials occupy the low-end market, while imported products, such as thin-wall inject molding dominate the high-end market.
As for industries with relatively small consumption, the share of PP pipe was stable at around 4% and that of random transparent material was flat at around 3%. Demand from the downstream medical or household supplies industries will increase in line with the improving consumption level of China and thus, the consumption volume of transparent materials will still have a large growth room.
Prices to remain stable-to-lower
China’s monthly PP imports averaged around 400 kt in 2018, with January and March registering the higher single-month import volume at 452 kt and 433 kt, respectively. From May, the import volume stayed at high levels and surged in August-September. The number is expected to hover high in October, when domestic PP prices surged, bringing into more competitively-priced imports into the domestic market. In November, with domestic PP prices moving downwards, the import volume stood at 400 kt on average. The year 2018 saw PP prices surging on the back of the heavy turnaround season and structural supply shorages. Prices rose at a slow pace in April-June and increased sharply in July-August. Limited supply, especially for copolymer proucct led to a fast price growth than yarn. The price gap between copolymer and PP yarn gradually widened. In September-October, tightened availability for PP yarn boosted its prices to exceed the levels of copolymer and thus, the price between the two narrowed. In mid-late October to November, PP prices slumped by RMB2 400/t and rallied slightly in December.
Peak capacities’ start-up season for the PP industry is likely to emerge in 2019. A number of new plants include those at Hengli Petrochemical (Dalian), Inner Mongolia Jiutai Energy, Dongguan Ground Resources, Zhong’an Union Coal Chemical. Domestic general-purpose plastics, especially for polyolefins stay high after China’s Lunar New Year holiday in February, at 850-950 kt. Given the prominent supply-demand contradictions, prices are overall weak, despite slight rallies so far in the year.
Supply-demand fundamentals remain the linchpin for PP prices
PP capacity additions in 2018 were 1 million t/a and may exceed 4 million t/a in 2019, which will take a hard hit on the domestic PP market. Demand is unlikely to pick up significantly and the demand growth rate may slow down in some areas.
The supply-demand pattern of the domestic PP market will gradually stabilise in next three-to-five years, with prices moving downwards. Afterwards, the market may likely regain some steam and prices may rebound from the bottom.
