China’s Unstoppable Consumption Juggernaut?



The major long-term shift in US refinery economics and C3s


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By John Richardson

CHINA will account for around one-third of global polypropylene (PP) consumption by the middle of this decade, up from the current 25%, as domestic demand continues to grow at more than 10% a year, said Mike Smith, consultant with DeWitt & Co.

This will be fed both by new capacities in China itself and the rapid rise in output from the Middle East.

New capacities will outpace demand growth for the next few years with global average operating rates below 90% up until 2014, Smith warned.

The Middle East is set to be able to produce 8-9m tonne/year of PP in 1-2 years’ time (most of this will be associated with propylene), placing it “in the same ball-park as the US,” added Smith, vice-president for propylene and derivatives.

The US and Europe are losing ground in PP export markets as a result of the new capacities, he said.

Exports helped support a rapid recovery in the US and European industries last year, with re-stocking in the US continuing to offer support, he added. Inventory rebuilding is being boosted by improved demand from the consumer electrical goods automobile sectors.

The US exported 600,000 tonnes of PP in 2009 – 8% of production – with European exports at 282,000 tonnes accounting for 3% of output, to China thanks to its unexpectedly rapid economic rebound.

North America has already seen PP capacity reduced by a net 700,000 tonne/year (closures in the US and start-ups in Mexico), said Smith. Europe has seen 1m tonne/year of closures since 2006 with 400,000 tonne/year of start-ups and a further 245,000 tonne/year earmarked for shutdown.

Europe is facing particular pressure from the Middle East in the key Turkey export market, but further announcements of capacity closures were possible in both regions, he warned.

And while there was good demand growth in Central and Eastern Europe (C&E) that was supporting the western European producers, Smith warned that capacity in C&E would also eventually rise.

The decline in the US and European polypropylene industries has occurred in parallel with dramatic changes in feedstock availability and economics.

The US has seen a 25% fall in C3 availability from steam crackers as a result of the drop in natural gas prices relative to crude and subsequent drop in ethane, which has widened the advantage of ethane over naphtha cracking.

Plus US refinery C3s availability has been reduced as a result of weaker gasoline demand and will continue to be constrained from greater use of biofuels and tougher fuel-efficiency standards, say industry sources.

There has been a lot of talk about the influence of Petrologistics’ 544,000 tonne/year propylene facility on US supply. The propane dehydrogenation-based facility, which is located in Texas, is due to come on-stream in late August this year.

But Smith said that the plant will add only 3.5% to total US C3s supply.

US propylene export availability has been reduced to such an extent that the country was “no longer the flywheel provider of C3s to the rest of the world”, said Smith.

European refinery propylene availability should improve as the economy picks up, but Smith warned that this could be offset by weaker gasoline exports to the US. Europe has seen its shipments to the States decline for reasons we’ve already highlighted.

Steam cracker operating rates in Europe could also come under downward pressure from ethylene derivative- imports from the Middle East, he added.

And the further bad news for PP producers in all regions is the supply surge.

Twelve million tonnes per year of capacity is due on-stream in 2009-11 in the Middle East and Asia, comprising 4.2m tonne/year in the Middle East, 5m tonne/year in NEA, mostly in China, and 2.8m tonne/year in Southeast Asia, he said.

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