INSIGHT: China’s need for ethylene imports could contract in 2020

SINGAPORE (ICIS)–China’s need for ethylene imports is likely to increase at a slower pace this year before possibly going into reverse for the first time in six years in 2020.

A slew of domestic projects spearheaded mainly by private enterprises, along with increased downstream competition amid a slowing global economy is likely to put the brakes on growth.

Shipments to China last year rose by 19.4% from 2017’s level to 2.58m tonnes. Japan and South Korea were the top two suppliers, with a combined 47.14% share of the leading import market.

The robust growth, which came on the heels of a 30.2% year-on-year gain in 2017, was spurred by the start-up of a steady stream of non-integrated derivatives projects.

The uptrend in import demand will extend into a fifth year in 2019, albeit at a more moderate pace, in the lead-up to a possible contraction in 2020. The annual growth in 2019 over 2018 is likely to be under 10%, with demand capped at around 2.8m tonnes.

In the first half of 2019, suppliers to China will continue to benefit from derivative projects that started up in the second half of last year.

Jiangsu Jurong Chemical that attained on-spec production at its ethylene oxide (EO) plant last December requires around 160,000 tonnes of ethylene annually, based on its nameplate capacity of 200,000 tonnes/year.

Anhui Haoyuan Chemical’s 260,000 tonne/year SM unit, operational since August 2018, has a structural demand for nearly 80,000 tonnes/year of ethylene.

Derivatives activity in the broader Chinese market, however, could be lower than the same period a year ago, in view of weak macroeconomic indicators and stringent safety inspections.

Manufacturing activity typically picks up in the second quarter but the performance of most derivatives has been lacklustre since the Lunar New Year holiday in February.

Suppliers of styrene monomer (SM) and monoethylene glycol (MEG) have been grappling with high port inventories in east China since early 2019.

Strong pre-holiday buying resulted in the arrival of unusually large quantities of import cargoes in January, while downstream offtakes have been below expectations amid a weakening economy hurt by trade issues with the US.

Safety inspection on chemical plants and storage facilities across the country, following a spate of accidents in Jiangsu in the second half of March and early April, also affected downstream production.

TIDE WILL TURN ON ASIA’s SUPPLIERS IN SECOND HALF OF 2019
Demand for ethylene imports will be comparatively weaker in the second half of the year, in line with increased domestic supply and as the outlook for the monoethylene glycol (MEG) sector worsens on rising global capacities.

China’s first mixed feed ethane-propane cracker as well as two methanol-to-olefins (MTO) plants that do not have any accompanying downstream units are scheduled to start up from mid-2019.

Jiangsu-based SP Olefins is planning to conduct trial runs at its Taixing cracker, which has an ethylene nameplate capacity of 650,000 tonnes/year, in August-September. Once the plant is up and running, parent company SP Chemicals will no longer need to import cargoes for its existing vinyl chloride monomer (VCM) and styrene monomer (SM) plants. This will translate to an annual import demand loss of up to 320,000 tonnes, which is equivalent to around 12% of the total shipment to China last year.

By the third quarter of 2020, SP Olefins will have sufficient feedstock ethane to reach its ethylene nameplate capacity when its second very large ethane carrier (VLEC) is ready. It will then become a major regular supplier, with up to around 330,000 tonnes available for sale each year. Potential customers include two neighbouring companies in Taixing that are currently reliant on imports.

Separately, Nanjing Chengzhi Clean Energy, which does not have any ethylene downstream facilities of its own is starting up a second MTO plant between late May and early June. Potential offtakers for its ethylene output of up to 240,000 tonnes/year would include existing importers located in Nanjing and Yangzhou.

Outside Jiangsu, Liaocheng Meiwu New Materials’ MTO unit with an ethylene nameplate capacity of 120,000 tonnes/year is expected to come on-stream in mid-2019 as well.  The company will compete with exporters to China for a share of the Shandong market where the plant is sited. CITIC Guoan Chemical is completing a 200,000 tonne/year standalone SM plant in the province in the second half of 2019.

Production activity in the downstream MEG sector in China may weaken further in the second half of the year due to weak margins on the back of rapid capacity expansion in the US and Asia.

Malaysia’s PETRONAS will start up a 740,000 tonne/year MEG unit at its new Pengerang Integrated Complex (PIC) in Johor. The plant has completed trial operation and is awaiting feedstock from its cracker, which has not yet come on-stream. An accident at a refinery unit in the complex on 12 April is expected to result in some delays in the start-up of the project.

Meanwhile, several new MEG plants in the US will come on-stream from early 2019. The increased supply will turn the country into a net exporter, with China as the main market.

Lotte Chemical’s 760,000 tonne/year joint venture plant in Lake Charles, Louisiana, started up in early 2019. Shipments to Asia have been limited as production has yet to stabilise.

Up to another 1m tonnes/year of capacity will start up in the US in the second half of the year.

Exporters will also have to compete harder for a share of the Chinese MEG market. Coal-based projects totalling over 2m tonnes/year are slated to be up and running in the second half of the year.

PRESSURE ON SUPPLIERS ESCALATES IN 2020
Come 2020, China’s ethylene import demand could see a contraction.

Downstream conditions in the country will become more challenging as new capacities at large-scale cracker projects come on-stream in 2020. Some of these developments will also have surplus ethylene for sale.

Demand from non-integrated downstream plants will increase but at a slower pace compared to domestic supply growth in 2019-2020.

In the SM sector, over 3m tonnes/year of capacities are scheduled to be operational next year, notably Zhejiang Petrochemical’s massive 1.2m tonnes/year unit.

The rising competition could erode the healthy margins that SM makers have been enjoying for the past several years, with A knock-on effect on the production rates and feedstock affordability levels of non-integrated producers.

For MEG, Zhejiang Petrochemical and Hengli Petrochemical will have a combined capacity of 1.6m tonnes/year. This will likely worsen the supply glut in the fibre intermediate market in Asia.

Ethylene suppliers to China will also face greater competition from new domestic producers.

Aside from SP Olefins that will become a major supplier by the second half of 2020, another two companies will join the fray.

Liaoning Bora Petrochemical will have around 50,000-100,000 tonnes/year of surplus ethylene from its naphtha cracker, which is slated to start up in the fourth quarter of 2020.

Ningbo Huatai Shengfu Polymer Material is expected to have a structural length of around 50,000 tonnes per year from its ethane-propane mixed-feed cracker. The company is targeting to commence production in mid-2020.

All the three companies will have loading facilities to supply domestic customers by gas tankers.

To facilitate the increased domestic trade, a major Chinese trader is building a 3,500 tonne vessel that will be ready in early 2020. There are currently only two vessels plying the domestic waters.

Standalone downstream projects due to start up in 2020-2021 will provide some outlets for domestic producers and exporters to China.

Qingdao Haiwan Chemical will have a second vinyl complex starting up in the second quarter of 2020, followed by Tianjin Dagu Chemical’s 450,000 tonne/year SM unit at the end 2020/early 2021. They will boost ethylene consumption by up to 315,000-320,000 tonnes/year.

Company	Location	Product	Capacity (KT/year)	Start-up timing
Anhui Haoyuan Chemical	Anhui	SM	260	Aug 2018
Jiangsu Jurong Chemical	Jiangsu	EO	200	Dec 2018
CITIC Guoan Chemical	Shandong	SM	200	H2 2019
Qingdao Haiwan Chemical	Qingdao	EDC/VCM/PVC	620/400/300	H1 2020, likely Q2
Tianjin Dagu Chemical	Tianjin	SM	450	End 2020/early 2021
Total ethylene demand	Around 610-620

By Yeow Pei Lin