China MTBE supply to lengthen in H2 on capacity start-ups

Winnie Huang

14-Jul-2017

car refuelling 14 July

SINGAPORE (ICIS)–China’s methyl tertiary butyl ether (MTBE) market is expected to fall deeper into a supply glut in the second half of 2017 as new domestic capacities will start up amid tepid demand.

Nearly 2m tonnes of additional MTBE capacity is scheduled to come on stream in the country in the next six months, according to the China editorial team at ICIS.

In eastern China, a major propylene oxide/MTBE plant at Nanjing in Jiangsu province is due to achieve on-spec production in July-August. The plant, jointly owned by Sinopec Jinling and US’ Huntsman, can produce 740,000 tonnes/year of MTBE.

Meanwhile, Shandong Dongming Petrochemical is expected to reach commercial output at its new 350,000 tonne/year MTBE plant in Shandong province this month.

In southern China, Yussen Chemical is expected to start trial runs at its 450,000 tonne/year MTBE unit at Huizhou in Guangdong province by the end of July.

Other smaller MTBE plants, namely, Luoyang Hongli’s 100,000 tonne/year unit; Shandong Huachao’s 200,000 tonne/year unit; and PetroChina Yunnan’s 60,000 tonne/year, are also due to come on stream in the second half of 2017.

But demand from the downstream gasoline blending market, which accounts for more than 90% of domestic MTBE consumption, has been subdued since the beginning of the year, with no expected improvement in the third quarter.

Sinopec may continue lowering its purchases of blended gasoline from independent refiners until late in the year, when its stocks need replenishing.

A seasonal increase in gasoline demand is expected in the fourth quarter, as traveling activity typically picks up amid the week-long National Day holiday in China on 1-7 October.

Domestic MTBE prices in China continue to be weighed down by low crude prices and weak demand.

On 13 July, prices were assessed at a fresh 10-month low of Chinese yuan (CNY) 5,000/tonne, down by 13% from the start of the year, according to data compiled by the China editorial team at ICIS.

South China MTBE 14 July

MTBE prices had peaked in 2017 at CNY5,950/tonne in mid-April, before spiraling down, the data showed.

State-owned giant Sinopec suspended purchases of blended gasoline from Shandong-based independent refiners in May, and from gasoline blenders in south and east China in June, as its gasoline inventories were at above comfortable levels, an east China-based gasoline blender said.

Gasoline blenders, therefore, had no need to tap the spot market for blendstocks such as MTBE during May-June, the source said.

Talks that the Chinese authorities will impose a consumption tax on imports of mixed aromatics pushed up trading activities of the product, and in turn prices of other blendstocks including MTBE, according to market participants.

Once the new MTBE plants are put into operation, domestic manufacturers may increasingly seek to export volumes to ease their stock pressure, with some small producers likely to be eliminated from the market, industry sources said.

However, the theoretical export margins for the product were largely negative during the first half of the year, putting MTBE producers in a dilemma, they said.

In the first half of 2017, MTBE prices on an FOB (free on board) China basis were higher by an average of $50/tonne than the FOB Singapore quotes, ICIS data showed.

“We will still choose to export some volumes despite negative margins,” a producer said.

China’s MTBE exports in January to May 2017 jumped 34.6% year on year to 17,100 tonnes, all of which came from major producer Wanhua Chemical, according to official data.

Wanhua Chemical is expected to deliver 30,000-40,000 tonnes of MTBE to a South Korean customer this year under a long term contract, and will have some spot cargoes shipped to to Taiwan.

In 2016, the producer exported a total of 60,800 tonnes of MTBE, more than half or 34,500 tonnes went to Taiwan, with South Korea taking up the rest of the volume.

Focus article by Winnie Huang

Pictured above: An employee refuels a car at a gas station in Luoyang city in China. Gasoline blending accounts for around 90% of methyl tertiary butyl ether (MTBE) consumption in China.

($1 = CNY6.78)

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