Propylene is mainly used to make polypropylene (PP), which accounts for nearly two-thirds of global propylene consumption. Other outlets include acrylonitrile (ACN), propylene oxide (PO), cumene, acrylic acid (AA) and a number of alcohols such as 2-Ethylhexanol (2-EH) and isopropanol (IPA).
Propylene supply in Asia was ample in the first quarter of 2014 despite a slew of cracker turnarounds during February and March. This is because of the generally high cracker operating rates across Asia, strong Taiwanese exports, the start-up of a large on-purpose propylene unit in China and weak downstream conditions in the key Chinese market.
Asian cracker-operators operated their facilities at or close to capacity amid a heavy cracker turnaround season so far in 2014. In Japan, where as many as six crackers will shut for maintenance, the average run-rates were at 90-100% in the first quarter. Producers sought to maximise production of the tightly-supplied ethylene, which was enjoying strong margins. The high cracker run-rates inadvertently led to increased propylene supply.
Strong exports from Taiwan bolstered regional supply as well. A major Taiwanese producer exported in March more than 40,000 tonnes of propylene mainly to China as a series of shutdowns at its downstream affiliates in the first quarter led to reduced captive consumption.
Downstream demand in China was slow to improve after the Lunar New Year holiday ended in early February. The Chinese domestic prices of most propylene derivatives such as PP, AA and 2-EH were under pressure from high stock built up over the holiday lull as end-users failed to scale up their restocking activity in line with expectations. Production cuts were widespread across such downstream sectors. Players blamed the poor health on China’s ongoing credit crunch and the underperforming export market for finished goods.
The abundant availability of competitively-priced product in the domestic market also curbed import demand in China. One such key supplier includes Tianjin Bohai Chemical Industry Group, which started up its 600,000 tonne/year propane dehydrogenation (PDH) unit in September 2013.
Spot propylene prices fell to $1,380-1,415/tonne CFR (cost & freight) NE (northeast) Asia by late March, the lowest level in about eight months because of ample regional supply and high port inventories in China on the back of weak downstream demand.
The recent declines in the Chinese yuan have also raised the dollar-denominated import costs for Chinese end-users and traders, who preferred to source for material from domestic sources.
Propylene comes in three grades: polymer grade (99.5% minimum purity), chemical grade (93-94% minimum purity), and refinery grade (60-70% purity).
Propylene is made as a by-product of steam cracking of liquid feedstocks such as naphtha and liquefied petroleum gas (LPG), as well as off-gases produced in fluid catalytic cracking (FCC) units in refineries. It is also made via on-purpose technologies such as metathesis and PDH, which is becoming the preferred production route in China.
Asia’s propylene supply-demand conditions for the rest of 2014 will depend on whether the PDH projects in China starts up smoothly and on time.
Exports from Japan and Taiwan are likely to slow down in the second quarter as several major propylene units are scheduled to shut from the second half of March and because of several ongoing and upcoming cracker turnarounds until June.
But domestic supply in China is expected to expand significantly as several PDH units start up progressively over the course of the year. Up to 2.85m tonnes/year of capacity are scheduled to begin operations by the end of 2014. China propylene capacity in 2013 was 2.54m tonnes with output of 1.85m tonnes. Startups begin with Shaoxing Sanyuan Petrochemical’s 450,000 tonne/year unit in Shaoxing, Zhejiang province, and Zhejiang Satellite Energy Co’s 450,000 tonne/year unit in Pinghu, Zhejiang province, in the second quarter.
On the demand front, there will be continued strong downstream expansions in China, particularly in the AA and phenol sectors. A majority of the projects are slated to start up in the second half of 2014.