OUTLOOK ’14: Asia propylene outlook cautious on new China capacities

By Yeow Pei Lin

SINGAPORE (ICIS)–Asian propylene players are expecting a volatile year in 2014 because of increased capacities of at least 1.5m tonnes/year coming on stream in the key market of China.

However, continued downstream expansions in China and a heavy cracker turnaround schedule in Japan in the first half of the year could help to cushion the impact of the start-ups, market players said.

Three propane dehydrogenation (PDH) plants are scheduled to begin operations in the first half of 2014, more than tripling China’s existing 600,000 tonne/year propane-based propylene capacity.

The first PDH unit was started up by Tianjin Bohai Chemical Industry Group in September this year.

All the three upcoming units are located in east China, a key demand centre for propylene imports.

“Most of the units will be supplying propylene feedstock to their downstream affiliates which are currently major importers. That means these end-users will be less reliant on imported propylene next year,” a trader said.

Polypropylene (PP) producer Shaoxing Sanyuan Petrochemical is expected to start up its 450,000 tonne/year PDH unit in Shaoxing, Zhejiang province, between the first quarter of 2014 and April, market sources said.

Acrylic acid producer Zhejiang Satellite Energy Co plans to bring on stream its 450,000 tonne/year PDH unit in Pinghu, Zhejiang province, likely in the second quarter of 2014, according to market sources.

The biggest impact on east China’s demand-supply balance is likely to be the start-up of Ningbo Haiyue New Materials Co’s  600,000 tonne/year PDH unit, players said.

This is because the company does not  have any derivative operations yet and all its propylene supply will be sold to domestic customers.

The producer was heard seeking to make long-term supply agreements with domestic buyers ahead of the plant start-up scheduled in the second quarter of next year.

Most participants expect the impact of the new supply to kick in in the second half of the year as it will take some months to stabilise the operations of the new PDH units.

“PDH units are not that easy to start up. In that sense, exporters to China will get some months of breathing room,” a regional trader said.

Until recently, Tianjin Bohai has yet to fully stabilise its operations at China’s first PDH unit. The plant was shut for about a week between the end of November and early December following a technical glitch.

Sellers are also expecting prices in the first half of 2014 to be supported by a spate of cracker turnarounds in Japan. Six Japanese facilities will shut between February and June next year, compared to three plant shutdowns in the country in 2013.

In addition, increased domestic demand from the downstream acrylic acid (AA) sector and plans by Mitsubishi Chemical to permanently shut its 392,000 tonne/year No 1 naphtha cracker at Kashima in May-June 2014 will likely impact exports from Japan, players said. 

Major consumer Nippon Shokubai plans to resume in early 2014 full production at its 460,000 tonne/year AA facilities in Himeji, a source close to the company said.

Production was partially stopped since September 2012 following a blast at the site.

Two other 80,000 tonne/year AA plants are expected to come on stream in Japan next year, sources said. One of them will be operated by Nippon Shokubai.

Continued downstream expansions in China next year will help to absorb the increased capacity, but there are concerns that such increases could result in a supply overhang and weak margins in certain derivative sectors, players said.

The capacity growth will be mainly in the AA sector. Around 960,000 tonnes/year of AA capacities are expected to come on stream in the eastern provinces of Jiangsu and Zhejiang in 2014.

The five projects include Zhejiang Satellite’s 320,000 tonne/year plant in Pinghu and Jiangsu Sanmu’s 160,000 tonne/year plant in Taixing. Formosa Plastic Corp, BASF-YPC and Zhejiang Julong Petrochemical are scheduled to each start up a 160,000 tonne/year plant in Ningbo, Nanjing and Taixing, respectively.

“The margins for (AA) producers have been healthy this year but next year will be challenging for us with so many new plants coming up,” an AA producer in China said.

Market participants are also bracing themselves for a volatile second half-year in 2014 when the new PDH units come on stream.

“The trading environment will be tough in the second half. We are bearish on the price outlook,” a trader said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections