A tale of two PTA projects

28 February 2005 00:01  [Source: ACN]

MAKING comparisons is a part of human nature – and it is not that different in the petrochemicals industry. Hualian Sunshine Petrochemical and Yisheng Petrochemical are due to start up new purified terephthalic acid (PTA) plants in two different cities in eastern China in H2 2005, and comparisons between the units have been going on for at least two years.

This is because their start-up dates are so close to each other and both have capacities of 600 000 tonne/year. Yisheng’s unit is due to start up on 26-28 February; Sunshine’s unit is slated to start up by late April or early May.

Sunshine has a state-owned company, Shenzhen Union Developing, as a partner, but Shenzhen is run practically without state interference, while Yisheng is fully owned by private investors. This will be the first time PTA will be produced in China by private companies.

Both are located in Zhejiang province – Sunshine in Shaoxing, and Yisheng in Ningbo – and are less than two hours’ drive from each other.

Finally, both will cater to the burgeoning eastern Chinese market, the world’s largest polyester and textile production base. However, the similarities end there.

News about Sunshine’s project surfaced as early as mid-2001, but it received final government approval only in late 2002. Work on the plant began in early 2004, though there have been rumours that construction problems have caused delays.

It is now expected to come onstream only in April/May. Earlier, the start-up dates were rumoured to be end-2004, then Q1 2005 and end-March 2005.

A senior official at Sunshine has rubbished talks of delay, saying: ‘We never told anybody that the plant would start up at the end of 2004, or March or the first quarter [of 2005]. Construction has been proceeding smoothly, and we entered the final construction phase in January this year.’

Yisheng’s start-up date was originally set for Q2 2005, but late last year it was brought forward – to March 2005, claimed market sources. Around Christmas 2004, markets were abuzz with rumours that the plant would start up even earlier. Company officials then confirmed in January that the new start-up date would be 26 February.

But, until as late as July 2004, plant and equipment had not been installed at Yisheng’s site, the market sources said. Yisheng officials refused to comment on the apparently sooner-than-expected start-up date. But sources in the know say construction started only in late Q3 2004. They claim it has been carried out rapidly because of fears that the central government may block the project in its attempt to cool down the overheating Chinese economy.

The industry talk was that Beijing might seek to stop Yisheng’s project and that the sudden spike in the company’s construction activity was an attempt by the company to achieve a fait accompli.

And Yisheng may have succeeded. Although the company still does not have official approval from the National Development & Reform Commission (NDRC) for the project, despite having sought approval in 2003, it does have the support of the Ningbo and provincial governments. However, a nod from the NDRC is still mandatory. Without Beijing’s okay, the banks will not disburse loans needed to operate the plant. But, observers feel that whether or not Yisheng gains final approval is irrelevant. They add that Beijing would not block any project of this scale at such an advanced stage.

One senior Yisheng official agreed: ‘For the first few months, there may be some uneasiness. But once the banks see that our plant is running well and production is smooth, I’m sure the funds will come and the central government will give its final approval.’

A look at its infrastructure, feedstock sources, and customer base appears to support the view that Yisheng is ahead of Sunshine in the PTA game.

Ningbo, where Yisheng is located, is one of the largest ports in China and, with its comprehensive storage facilities, is a leading harbour for the country’s petrochemicals industry. The coastal city also hosts a mid-sized aromatics producer, Sinopec-owned Zhenhai Refining and Chemical Corp, which will supply part of Yisheng’s paraxylene (PX) requirement.

In contrast, Sunshine is based inland in Shaoxing. Although it is near a river, with plans for a port to be built there, it is still only on paper. PX, acetic acid, and catalysts will have to be transported by lorry from Ningbo port to Shaoxing, a distance of about 300km.

On feedstocks, both companies have refused to divulge their suppliers, but it is understood that Yisheng has managed to seal long-term contracts with a leading western producer and several South Korean PX suppliers. Sunshine, meanwhile, will reportedly depend on Japanese trading companies.

As for customers, Yisheng has secured 100% offtake. Its owners, the Zhejiang Hengyi Group and Rongsheng Chemical, are polyester producers.

Besides Shenzhen Union Developing, Sunshine’s other owners are Zhejiang Jiabaili Textile Industry and Shaoxing Zhanwang Enterprise Group. Sunshine intends to sell its output in the merchant market.

Sunshine is employing Eastman Chemical’s EPTA (Eastman proprietary terephthalic acid) which falls somewhere between PTA and qualified terephthalic acid (QTA) in terms of quality. QTA is used widely in polyester fibre and commodity-grade filament-yarn production, whereas PTA is used more for premium-grade yarn, bottle and film-grade chip production. But as fibre and commodity-yarn producers dominate eastern China’s polyester sector, Sunshine’s material will readily find buyers, say the sources.

Sunshine plans to build two more lines at its site, lifting its total capacity to 2m tonne/year by 2006-2007. Zongheng Textile, which had also planned a PTA project at the same location, has dropped its plan and joined forces with Sunshine.

Like Sunshine, Yisheng plans to add another 600 000 tonne/year line, for which land has already been earmarked. But it plans to go solo for the second line.

Given the squeeze in the profitability of polyester producers, including its parents Hengyi and Rongsheng, this is a matter of concern. Though things may yet work out differently. If more projects merge with Sunshine, it is possible that Yisheng’s solo status, which promises faster response to market dynamics, may work in its favour.

Is this a fair assessment? Only time will tell. – Salmon Aidan Lee and Clara Tan

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