Price and market trends: China PDH plants may have to resell propane if delayed

02 May 2014 10:06 Source:ICIS Chemical Business

An estimated 1m tonnes of additional propane contracts for the five new PDH plants have been signed for 2014

China’s new propane dehydrogenation (PDH) units that are scheduled to come on line in 2014 may be forced to resell their contracted feedstock propane cargoes if start ups are delayed, industry sources said.

Two of the plants – both located in Zhejiang province and with 450,000 tonne/year capacities each – are coming on stream sometime in the second quarter, while two other units in the same province with larger capacities of 600,000 tonnes/year each will start production from June to the third quarter.

The largest of the five plants starting up has a 750,000 tonne/year capacity and will come on line late this year. The combined propylene output from these five projects is estimated at 2.85m tonne/year.

China is building up its propylene capacity in anticipation of increased demand from downstream sectors such as polypropylene (PP) and acrylonitrile (ACN), among others.

Two of the five companies that are planning to bring their PDH units online in the first half of 2014 may have to postpone start-ups because of typical delays associated with such big projects, industry sources said.

PROPANE SUPPLY CONTRACTS
Delays may cause problems because most Chinese companies with PDH units under construction have already signed term contracts for feedstock propane supply, mainly in accordance with the scheduled start-up time, market sources said.

An estimated total of 1m tonnes of additional propane contracts for the five new PDH plants have been signed for 2014 but if the start-up is delayed these companies may have to offer propane in China’s domestic market or re-export it other Asian countries, industry sources explained.

“Chinese PDH enterprises have signed term contracts for large volumes of propane for 2014. If the term supply is offered to the market, the Chinese market may become quite chaotic,” said a source with a PDH enterprise.

However, some traders said the impact on the market may not be substantial because not all the five units are expected to be delayed. Even if some are delayed, propane cargoes can be offered within China or else re-exported to other Asian countries.

These traders said the impact of such excess propane can also be mitigated by offering it for residential use of LPG (liquefied petroleum gas).

“China’s demand for imported LPG is being pushed up by shortages in residential LPG as more feedstock LPG is separated from residential fuel. Increased demand will be sufficient to consume imported propane if such feedstock is offered back to the market by PDH companies,” said a Chinese importer. According to market sources propane market will only come under pressure if the start-ups are delayed to next year, 2015.

China had its first PDH unit come online last year, with the start-up of Tianjin Bohai Chemical Industry Group’s 600,000 tonne/year facility in the fourth quarter.

By Fiona Zhu