News focus: New supply to weigh on China polyolefins

17 July 2014 18:17 Source:ICIS Chemical Business

China is expected to add 1.2m tonnes/year of new PE capacity, and 2.7m tonnes/year of PP capacity in the second half

China’s growing polymer production capacity is expected to weigh on market prices of polyethylene (PE) and polypropylene (PP) in the near term, but rising costs of feedstocks ethylene (C2) and propylene (C3) could keep prices of plastics products firm, market sources said on 15 July.

On 11 July, LLDPE prices were assessed at $1,585-1,595/tonne CFR (cost and freight) China, up by $35/tonne from 13 June; while PP flat yarn prices were assessed at $1,520-1,540/tonne CFR China, up by $15-20/tonne from the previous four weeks, according to ICIS data.

Prices of feedstocks ethylene and propylene grew at much faster rates over the same period. Propylene prices were assessed at $1,450-1,465/tonne CFR NE Asia on 11 July, up by $35-40/tonne from a month ago, while ethylene prices stood at $1,520-1,540/tonne CFR NE Asia, yielding a cumulative gain of $80-90/tonne over a four-week period, according to ICIS data.

In the second half of this year, China is expected to add 1.2m tonnes/year of new PE capacity, and 2.7m tonnes/year of PP capacity, representing the bulk of capacity additions scheduled this year, according to data from Chemease, an ICIS service in China.

For the whole of 2014, capacity additions in PE and PP would be 2.2m tonnes/year and 3.5m tonnes/year, respectively. Among these are Shaanxi Yanchang Petroleum’s new 300,000 tonne/year PP unit and 300,000 tonne/year linear low density PE (LLDPE) unit that will start up on 17 July.

Its other 300,000 tonne/year PP plant and new 300,000 tonne/year high density PE (HDPE) plant in Shaanxi province were started up on 30 June and 1 July, respectively.

Maoming Petrochemical’s new 200,000 tonne/year PP plant in Guangdong province is expected to start up in end-July/early August, while Shijiazhuang Refining & Chemical Co (SRCC) also plans to start production at its new 200,000 tonne/year PP unit in Hebei province in end July/early August.

SEASONALLY WEAK DEMAND
The capacity additions, however, are coming at a time when demand is seasonally weak.

Summer months in China from June to August typically meant rationing of electricity available for industries in favour of households, forcing factories to reduce production during this period. PP has applications in household appliances and plastic pipes. For block co-polymer PP that is used in washing machines, demand may not improve until late August, according to market sources.

At the height of summer, activities in the construction sector are dampened, leading to a general weakness in demand for polymers, market players said.

Some grades, including LLDPE film for use in shed plastic film and pearlised biaxially-oriented PP (BOPP) for use in cold beverage packaging, however, may see some improvement in consumption.

The upcoming harvest season in September, meanwhile, is expected to boost demand for PP flat yarn (raffia), which is applied in plastic woven bags, a local trader said.

Additional reporting by Amy Yu, Summer Zhang and Lizze Yu

By Doreen Zhao