By Sun Shanshan, JLC

Year 2020: propylene oxide prices fluctuated in a low range and surged to RMB19 000/t for three times in the second half of the year

Downstream production was delayed and domestic logistics was restricted after the Spring Festival in 2020 because of the COVID-19 outbreak, so demand for propylene oxide weakened, which dragged down the operating rates by 20% year on year to 70%. As of early April, the propylene oxide prices fell to RMB6 700/t (ex-works Shandong, the same below), hitting a historical low. Then downstream and end-user demand perked up with the government’s stimulation initiatives, and the prices of propylene oxide stopped the downside and recovered gradually.
   In May, the prices continued to rise in line with strengthening demand on the back of domestic economic recovery under a series of stimulus plans and the contained epidemic situation abroad. The traditional peak season of polyurethane in September lent further support to the prices of propylene oxide. By mid-October, the prices reached RMB19 000/t. Figure 1 shows the price trend of domestic propylene oxide in 2020.

Figure 1 Domestic propylene oxide prices in 2020

Imports of propylene oxide still concentrated in the south

   The total import volume of propylene oxide was 470 500 tons in 2020, down by 2 500 tons or 0.52% from a year ago. The import prices were averaged at US$1 218/t, marking an increase of US$65/t or 5.55% year on year. It is estimated that the total import volume will be about 520 000 tons in 2021. Figure 2 shows the import volume of propylene oxide in China from 2019 to 2020.

Figure 2 China's propylene oxide import volume from 2019 to 2020

   Saudi Arabia, South Korea and the United States were the top three import contributors in China's propylene oxide market in 2020. The total import volume from Saudi Arabia was 140 000 tons, down by 80 000 tons from that in 2019; the volume from South Korea was 98 800 tons, decreasing by about 21 200 tons from that in 2019; the volume from the United States was 40 200 tons. Figure 3 shows the proportion of propylene oxide imports by country in 2020.

Figure 3 The Proportion of propylene oxide imports by country in 2020

   In 2020, the imports of propylene oxide were still concentrated in the southern market. Zhangjiagang, Jiangsu Province and Ningbo, Zhejiang Province were the main import ports of propylene oxide, accounting for 76% and 9% of the total import volume respectively, followed by Shandong, accounting for 10% of the total import volume. Figure 4 shows the proportion of receiving and shipping propylene oxide in China in 2020.

Figure 4 The Proportion of receiving and shipping propylene oxide in China in 2020

Main downstream polyether polyol export divided in 1H 2020 vs 2H 2020

   Polyether polyol is the main downstream of propylene oxide, accounting for nearly 80% of the consumption. Figure 5 shows China's polyether polyol export data from 2018 to 2020. The total export volume of polyether polyol was 802 381 tons in 2020, an increase of 50 668 tons from that in 2019. However, the export market told totally different stories in the first half vs the second half of the year.

Figure 5 Exports of polyether polyol in China from 2018 to 2020

   In the first half of 2020, the export volume was restricted by the virus and the total volume was at 353 900 tons, down by 8 812 tons from the same period of 2019. In the second half of the year, the demand strengthened and the export volume was 448 481 tons, an increase of 94 581 tons compared with the first half of the year, and an increase of 59 480 tons compared with the same period of 2019.

Domestic propylene oxide profit started 2020 with a low level but increased during the year

   At present, there are three propylene oxide processes in China, which are co-oxidation process, HPPO (hydrogen peroxide direct oxidation process) and chlorohydrin process. Chlorohydrin technology is the most mature, and the process is also the least costly. Taking the chlorohydrin process (the price is based on the average daily price in East China) as an example, the profits of chlorohydrin-based propylene oxide is shown in Figure 6. In 2020, the average profit of chlorohydrin-based propylene oxide was at RMB3 479/t, up by RMB1 779/t or 104.65% from that in 2019.

Figure 6 Profits of chlorohydrin-based propylene oxide (RMB/t)

   Downstream demand was lacklustre during January-April 2020 as result of the COVID-19 crisis. This weighed heavily on propylene oxide production and sales, so the prices fell and the margin room was squeezed. During April-October, as the virus was contained in China and polyurethane peak season came, downstream and end-user demand perked up, pushing up the propylene oxide prices. Thus, the margin room increased and hit RMB9 200/t as of October 19. In the fourth quarter, the propylene prices were strongly supported by a positive quarter-to-quarter increase of export orders for downstream polyether and continuously robust demand from end-user sectors such as refrigerators, freezers and vaccine cold chain. As a result, the profits remained high.

Year 2021: facing challenges, but still promising

   The domestic propylene oxide prices kicked off year 2021 with a high level as downstream producers had many order backlogs to fulfill and the demand for propylene oxide remained strong in the first half of January. However, the inventory level increased with the approach of the Spring Festival and lower demand from some sponge plants in Hebei Province where the epidemic situation worsened. In order to ease the inventory pressure quickly, producers cut prices sharply in the middle and late January, while downstream producers just bought a dip on a need-to basis. When falling to around RMB16 200-16 300/t (ex-works, Shandong), the prices were consolidated in the range. Figure 7 shows domestic propylene oxide price trend in 2021.

Figure 7 Domestic propylene oxide price trend in 2021

   Table 1 shows the new projects of propylene oxide in China in 2021. The total capacity of propylene oxide is planned to be 1.48 million t/a. If these projects are successfully put into operation as scheduled, the total capacity in China will reach 4.717 million t/a, and the annual output will reach 3.77 million tons, reflecting that the self-supply rate will rise to about 88%.

   The rapid expansion of propylene oxide capacities will affect the market greatly in 2021. Capacities of downstream polyether polyol and dimethyl carbonate are being expanded as well. The new capacity of polyether will be about 1.235 million t/a in 2021. It is expected that China's propylene oxide supply will remain slightly tight in the next 1-2 years, which will give support to the margin room.