China’s petchem output up despite environment curbs

Ivy Ruan Tahir Ikram

15-Nov-2018

China’s output of key petrochemicals is on the rise amid a slew of new capacities and as it looks to shore up its economy, following the country’s trade war with the US, by softening environmental restrictions on polluting industries.

Despite the curbs, which seem to have been less stringent in 2018, production of primary feedstocks and petrochemicals, including naphtha, benzene, toluene, styrene (SM), propylene and the major plastics, was up in January-September 2018 against the same period of last year.

 

The government has pursued and enforced strict environmental measures since 2016 to improve air quality, water pollution and ground contamination. Many petrochemical plants and derivative units have had to either stop production or shut down as a result. To consolidate the results of previous environment inspections, the government conducted a first batch of “reviewing” of environment inspections in 10 provinces in May this year. It is undertaking a second round of reviews in 10 more provinces from late October.

Higher production can partly be attributed to new plants having been set up from late 2017 and also because China adopted measures to shore up its economy, including liquidity injection, tax cuts and easing of anti-pollution policies to ward off the adverse impact on growth from its trade war with the US.

Last month the government announced an easing of some environmental measures that have come into force for winter production starting from October and ending in March 2019. The impact on overall production will be known later. For the first nine months of 2018 production statistics show the output of several major petrochemicals rose this year.

Naphtha output was up by 3.5% to 26.3m tonnes in the January-September period, year on year, according to China’s National Bureau of Statistics. Estimated benzene output will be up by 12.4% to 1.23m tonnes in 2018 while toluene production will be higher by almost 10% to 7.1m tonnes, according to ICIS data.

AROMATICS ON THE RISE

Aromatics production will be higher due to the contribution from new capacities. The impact of the environmental measures was more pronounced on the hydro-coking benzene industry than on petroleum-based benzene.

“The average operating rate of the hydro-cracking benzene industry has been only 50% in 2018,” said ICIS analyst Jenny Yi. The operating rate in 2017 was 62%.

Styrene production in 2018 was up by 9.24% in the first nine months of the year compared with the same period of 2017. The country produced 5.4m tonnes of the monomer in the January-September 2018 period , said Jimmy Zhang of ICIS.

“Environmental inspections do not have much impact on upstream petrochemical products like styrene monomer. The SM factories usually belong to big companies,” Zhang said.

Most of these companies have enough funds to comply with government-set environmental standards, whereas that is not the case for smaller, downstream plants in sectors like plastics, textiles, printing and dyeing, Zhang explained.

Among the higher volume chemicals, the average ethylene operating rate for 2018 is estimated to have actually come down from last year, according to Amy Yu, a senior analyst at ICIS Analytics & Consulting, who attributed the decline to higher unexpected plant shutdowns.

Yu’s estimate of the average operating rate for ethylene production for 2018 is 88% as compared to 93% in 2017. Overall, though, estimated ethylene output in 2018 would be slightly higher at 22.7m tonnes as opposed to 21.8m tonnes last year.

The increase in actual output was the result of additional capacity that came on line in 2018, Yu explained.

Propylene production in 2018 is expected to be 3.7% higher than in 2017, mainly because of the start-up of new capacity, according to Joey Zhou of ICIS.

Estimated 2018 output of propylene will be 29.1m tonnes whereas 28m tonnes was produced last year. Average operating rates will be slightly lower at 89.3% in 2018 as compared to 90.5% in 2017. Primary plastics production is up by 5.7% at 63.5m tonnes, according to figures publicly available at the website of National Bureau of Statistics.

Besides new capacity, one major explanation for the increase in output is that most of the worst polluting factories were closed in the 2016/2017 environmental improvement campaign. The remaining factories invested in improving their equipment and processes to become cleaner.

Sinopec Qilu Petrochemical shut down its 80,000 tonne/year acrylonitrile (ACN) plant in July 2017 and then decided to close it permanently. Other ACN plants, such as PetroChina Fushun and Jilin Petrochemical stopped in the fourth quarter that year during the environment inspection drive. As a result, ACN prices surged consistently in the second half of the year on the back of a sudden shortage on the supply side due to the shutdowns caused by the environment inspections.

The same situation of brief shutdowns also took place in the adipic acid (AA), methanol, styrene and methyl methacrylates (MMA) markets in 2017, according to market sources.

Going forward, the government has announced that a target of a 3% year-on-year reduction in average intensity and the number of days with high levels of the particulate PM2.5 would be implemented in Beijing, Tianjin, Hebei and surrounding areas.

The target applies from October 2018 to March 2019 and affects producers of thermal power, steel, petrochemicals and cement. That is less than the 5% cut proposed in an initial plan, identified in media reports. ■

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