China PE start-ups from CTO face delays

Some of China’s new polyethylene (PE) capacities via the 
coal to olefins (CTO) route may not come on stream in 2017 
as scheduled in view of poor margins, market sources said on 11 April.

Margins have been squeezed because of rising feedstock coal costs and falling PE prices in recent months, which will mean that plant owners will operate the new units close to a loss, they said.

On 31 March, domestic prices of spot linear low density polyethylene (LLDPE) film averaged yuan (CNY) 9,400/tonne, a fall of around 6.7% from early February and down by 1% from a year ago, according to data compiled by the China editorial team at ICIS.

This brought average PE margins via the CTO route under CNY400/tonne in March, down by 69% compared with a year ago.

Moreover, producers usually sell their new products CNY200-300/tonne lower than the average market value so as to attract market players’ buying interest, which will make the margins even thinner.

Potentially 2.55m tonnes of additional PE capacity via the CTO route and naphtha-based olefins/PE is expected to come on line in 2017 in China. 
However, the start-up of nearly 35% of these new capacities remains uncertain.

PE capacity via CTO/MTO (methanol to olefins) route will likely account for 22% of the total PE capacity in China by the end of 2017, up by three percentage points year on year.

RETURNS RE-ASSESSED

The PE via CTO route has been losing its price advantage over traditional naphtha-based olefins/PE since 2014 when international crude prices started to plunge. The economic returns of new PE projects, most of which are coal-based, have since been re-assessed.

Shanxi Coking Group, for example, has postponed its start-up schedule from 2014 to 2017. Jiutai Energy has put off indefinitely the start-up of its 250,000 tonne/year high density polyethylene (HDPE)/LLDPE swing plant via the CTO route.

By the end of 2016, newly-added PE capacity via CTO/MTO route totalled 1.47m tonnes/year, a rise of 4.8% from 2014, ICIS China data showed.

However, total PE capacity 
to be added via CTO/MTO 
route in 2017 is expected to be much lower to be at 950,000 tonnes/year.

Therefore, producers will have to weigh in the current price trend before deciding to start up their projects.

“The spot price trend in the near-term will be the major reason for coal based-PE new project to start up,” a trader based in east China said.

However, if too many of these projects come on line this year, it may also “weigh on the prices”, a market player in North China added.