Summary of Research on the Four Major Coal-to-Olefins Projects in the Northwest

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This post was last edited by liaifeng on 2018-8-18 at 10:12. Summary of the investigation into the four major coal-based olefin projects in the northwest / Author/Source: Huahua Network / Date: 2017-09-22 / Views: 66. From September 4 to September 8, 2017, an investigation was conducted into several coal chemical enterprises in the northwest, organized by the Dalian Commodity Exchange and the China Petrochemical Federation. These enterprises included Shenhua Yulin Energy Chemical Co., Ltd., China Coal Shaanxi Yulin Energy Chemical Co., Ltd., Inner Mongolia China Coal Mengda New Energy Chemical Co., Ltd., and Shenhua Baotou Coal Chemical Co., Ltd. I. Key points summary: 1. Currently, the operating rates of coal-to-olefins plants in the northwest are relatively high, and their profits are good. Among them, those that purchase coal to produce olefins enjoy even better profits, around 1,500–2,000 yuan per ton, while those that use methanol for this purpose have lower profits, around 500 yuan per ton. 2. Currently, the inventory of coal-based polyolefins is relatively low; companies are seeing good sales performance, and there is also a high level of enthusiasm for production. The major maintenance campaigns for these companies have largely been completed, and there are no plans for major repairs in the short term; it is expected that production levels will remain high going forward. The future prices of polyolefins are viewed positively. 3. As for methanol, currently, due to the good level of operation of coal-to-olefins plants in the northwest region and decent profits generated, there is high demand for methanol in that area. Apart from those gas-based manufacturers that have shut down due to cost issues, the coal-based methanol producers in the vicinity should be enjoying good profits; unless there are special reasons, these companies should also be willing to continue operating at full capacity. In this region of the northwest where methanol prices are relatively low, methanol prices have been rising for several consecutive days; therefore, we remain optimistic about future methanol prices. II. Research Findings (I) Shenhua Yulin Energy Chemical Co., Ltd. 1. Company Overview: Commissioning for trial operation took place in December 2015; the project mainly includes a methanol-to-olefins unit, an olefins separation unit, a polyethylene plant, and a polypropylene plant. The production capacity is 300,000 tons per year of polyethylene and 300,000 tons per year of polypropylene. Follow-up projects include the CTC project, which encompasses the 13 million tons per year Dabaochang coal mine and the associated coal washing railway, as well as a methanol production facility with a capacity of 4 million tons per year; there are also downstream projects for producing olefins from methanol at a rate of 1.51 million tons per year, along with the corresponding facilities. Phase I of the CTC project involves a 2-million-ton coal-to-methanol plant, which also produces 400,000 tons/year of ethylene glycol. 2. Regarding raw materials, the manufacturer currently purchases methanol from external sources, acquiring it from methanol plants located within a 300-kilometer radius for use in production. The designed production capacity of these local methanol plants is around 6-7 million tons per year, which is sufficient to meet the production needs, eliminating the need to import methanol. The methanol plants with which long-term cooperation exists in the surrounding area currently include Shenmu with a capacity of 600,000 tons, Yankuang with 600,000 tons, and Kaiyue with 600,000 tons, which are sufficient to meet production needs. The pricing model for purchasing methanol involves using the regional low-end prices; the average of the low-end prices from three websites (Jinlianchuang, Zhongyu, and Zhuochuang) is used as the daily purchase price. The company enters into long-term contracts with local methanol producers, with these contracts renewed annually and settlements made on a monthly basis. The monthly payment amount is calculated by multiplying the daily settlement price by the number of tons purchased. The enterprise has 4 methanol storage tanks of its own, with a total capacity of 120,000 cubic meters, allowing it to store 96,000 tons of methanol; currently, around 50,000 tons of methanol are stored there. 3. Inventory: The company’s storage capacity for polyolefins is approximately 10,000 tons each for polyethylene and polypropylene; currently, the inventory levels are 6,000 tons for each type. There are also 28 warehouses in other locations; the total inventory level cannot be estimated. However, the production cycle for polyolefins is short, around 5-10 days, so inventory replenishment occurs quickly as well. 4. In terms of sales, the factory’s products are sold through the sales company affiliated with the group’s head office. The products produced by the group’s subsidiaries in Xinjiang, Baotou, and Yulin are all sold through the sales company located in Baotou. The factory is responsible for production, packaging, and loading; once the products are delivered to the sales company, it is this company that handles distribution. The sales model of the group company was such that, until June 2017, sales were primarily carried out through electronic platforms; the bottom price was determined based on the transaction prices from previous days, and then the items were listed on the platform for bidding, with the highest bidder winning. Under the online sales model, a 10% deposit must be paid first. After a transaction is completed, the full payment must be made before one can choose to pick up the goods from the designated warehouse; payment precedes delivery. Starting from June this year, CNPC and Sinopec have adopted a channel for major clients, that is, offline sales; they rate large distributors and, based on the online transaction prices, offer different rebate rates to these clients for direct offline sales. The approach of developing offline sales involves, when prices decline, many customers choosing to place their orders with CNPC and Sinopec first; therefore, reaching agreements through offline sales helps to maintain market share during such price drops. Currently, the group’s sales company uses each of the two sales methods in equal measure, at 50% each. Specialized materials such as high-pressure types are mainly sold offline, while general-purpose materials are mainly sold online. 5. In terms of environmental protection, it has little impact on businesses. 6. In terms of the advantages of coal chemical processing, the quality of polyolefins produced through coal chemical methods is not significantly different from that of polyolefins produced from traditional oil-based processes; in fact, it can even be better. Rumors in the market suggest that some coal chemical products turn yellow due to insufficient addition of antioxidants, but this has nothing to do with their quality. The difference between coal-based chemical products and traditional oil-based products lies mainly in market acceptance; currently, coal-based chemical products are 400-500 yuan per ton cheaper than oil-based products, and this price gap is set to continue narrowing, or even reverse in the future. 7. In terms of costs, the ratio of raw materials to products in the factory is 3.2 tons of methanol per ton of polyolefin produced, with polyethylene and polypropylene accounting for half each; therefore, the purchase price of methanol has a significant impact on the cost of the products, with raw material costs making up 60–70% of the total cost of the products. Recently, the operation of methanol production plants in the northwest region has been unstable, which has led to an increase in the price of methanol in that area; it is currently 2430. This rise in prices has significantly eroded the profits of these companies, which jokingly say that all their profits go to the methanol plants, and that they are essentially working for those plants. 8. Regarding understanding of futures, the company does not currently engage in futures trading, as the group does not participate in such activities on a unified basis. Therefore, for the company, the way to mitigate the risks associated with price fluctuations in the upstream supply chain is through the CTC project that it is currently carrying out – that is, building its own equipment for producing methanol from coal. Since the CTC project relies on coal mines, the cost of coal extraction is very low, at around 120 yuan per ton. The cost of the produced methanol is between 1,000–1,200 yuan per ton when it’s low, and 1,300–1,400 yuan per ton when it’s high, which is lower compared to the current purchase cost of over 2,000 yuan per ton. Additionally, the CTC project also produces ethylene glycol, and the profits from this are quite substantial. Furthermore, companies are currently actively developing specialty materials. Although the cost of such materials is similar to or slightly higher than that of conventional materials, their selling price can be much higher, which represents an effective way for companies to increase their profits. However, given the relatively small market size for specialty materials, they can only serve as a supplementary option. Although corporate profits are affected by methanol prices, there was still a profit of over 100 million last year. Mainly, last year the average price of methanol was lower than that of the year before, but the average price of polyolefin products was higher than in the year before, and it is even higher this year; thus there is still a certain profit margin available. 9. In terms of logistics: The total cost of the products does not include logistics costs. The factory is responsible for loading the goods; after they are delivered to the sales company, the sales company handles the subsequent distribution. Most products are shipped to various off-site warehouses, where customers can pick them up at the nearest location. A small proportion of orders are delivered directly to customers’ homes, but this accounts for a very low percentage. Currently, for transportation, 30% is by road and 70% by rail, as road transport is more expensive while rail transport is cheaper. Regarding shipping costs, it’s about 400 for road transport and 380 for rail transport to Changzhou. 10. In terms of maintenance, the factory carries out regular minor repairs: high-voltage equipment is shut down for 1–2 days per month for such repairs, while PP equipment requires minor repairs every 2 months; there was one repair lasting over 10 days in the first half of this year. Major repairs are carried out once every two years. 11. Regarding the commissioning of new facilities, the CTC project is expected to be put into operation around the end of 2020. (II) China Coal Shaanxi Yulin Energy Chemical Co., Ltd. 1. Company Overview: Established in 2010, the company has a coal-to-olefins production capacity of 600,000 tons per year, as well as coal mine projects with a capacity of 15 million tons (not yet built), and another coal mine project in Yan’an with a capacity of 5 million tons. 2. In terms of raw materials: The factory has facilities for producing methanol from coal, olefins from methanol, as well as units for olefin separation and the production of polyethylene and polypropylene. Therefore, the factory needs to purchase coal; since the coal mines by the sea have not yet started operations, and the coal mines in Yan’an are located at a distance, the factory purchases coal from local coal mines. Based on market prices, negotiations are held with the enterprise; settlements are made twice a month, and coal with a calorific value of over 5,500 kcal is primarily purchased for production. In terms of consumption, 1 ton of polyolefin products requires 7.5 tons of coal (including both raw coal and fuel coal; the raw coal has an energy content of 5,800 kcal, while the fuel coal has an energy content of around 5,000 kcal and is used primarily for generating power, with a ratio of roughly 3 to 1 between the two). The cost of coal accounts for 40% of the total cost. The enterprise has 6 methanol storage tanks of its own, with a capacity of 120,000 cubic meters, allowing it to store 84,000 tons of methanol. 3. In terms of sales, they are handled uniformly by the group company, with online sales through platforms being the main method, and no offline sales taking place. The selling price is based on the quotes from CNPC and Sinopec. The product quality of China Coal is good, and its price is 40-50 yuan/ton higher than that of similar coal chemical products on the market, mainly due to its high level of recognition in the market. 4. Advantages of coal chemical industry: Regarding the future market share of coal chemical products, companies believe that this share has risen from just a few percent in the past to the current 20%. Based on production plans, although it may not be possible to reach 50% by around 2020, a steady year-on-year increase is the general trend. Compared to traditional oil-based products in the coal chemical industry, the cost advantage is influenced by both coal prices and oil prices. However, coal-based products require large initial investments, but their operating costs are relatively low later on. 5. In terms of environmental protection, it has little impact on businesses. 6. In terms of maintenance, all enterprises have maintenance plans. In April and May this year, they carried out their first major overhaul since being put into operation over two years ago; normally, they operate beyond their capacity. Generally, major repairs are carried out according to a plan and the actual operating conditions of the machine, while minor repairs are scheduled when prices are low; major repairs are usually done every 3 years. Companies generally do not adjust their production levels in response to price changes. Given that enterprises have two sets of equipment—one for coal-to-methanol production and the other for methanol-to-olefins production—they generally won’t shut down either of them unless extreme price conditions arise. However, short-term shortages of methanol or the need to source it from external suppliers during maintenance, or the sale of olefins when production stops temporarily, are all short-term measures. 7. In terms of costs, it takes 3.13 tons of methanol to produce 1 ton of polyolefin products, with variable costs of around 5,000. 8. Regarding inventory, the company has a storage capacity of 30,000 tons; currently, the inventory level is around 15,000 tons, of which 8,000 tons consist of products that have already been sold. Sales are currently performing well. Company overview: Inventory levels are somewhat seasonal, averaging 30,000 tons. Inventory is higher during the Spring Festival, at around 40,000–50,000 tons. It is lower during the peak periods for agricultural plastic films, in April–May or October, with inventory amountsing to 10,000–20,000 tons. The company also has 14-15 warehouses in other locations, which are rented. 9. Currently, the company uses general-purpose materials, with no specialized materials. 10. In terms of logistics, it is affected by weather conditions; for example, before the Spring Festival, poor weather makes roads difficult to use and vehicles hard to find. However, arrangements are made in advance to avoid inventory buildup. 11. In terms of profits, the company achieved a profit of 2.2 billion last year. This is mainly because the company purchases coal to produce methanol, which is then used to manufacture polyolefins; as a result, the costs are much lower. A large portion of the profits comes from the methanol production process using coal, which is why the company’s profits are higher than those of Shenhua Yulin. (III) China Coal Mengda New Energy Co., Ltd. 1. Company Overview: It conducted trial operations in April 2016 and officially commenced production on August 1 this year. The facility has a capacity to produce 600,000 tons of olefins from methanol; it consumes 1.8 million tons of methanol annually, with the methanol being purchased from external suppliers for the production of polyolefins. 2. Maintenance and startup: Last year, the average load was 106%, with a maximum load of 115%; currently, the load stands at 112%. The design load of the equipment is 70-110%. Generally, the facilities operate at full or even over capacity. Load reduction is considered only when there are problems with the equipment or when inventory levels become too high. However, load reduction is not done simply because market prices are unfavorable. The factory underwent a major maintenance shutdown lasting 33 days in June, with the next one expected in 3 years. There are basically no minor repairs. 3. In terms of raw materials, when China Coal Mengda chose its location, it took into account the fact that Inner Mongolia Boyuan was located nearby. Inner Mongolia Boyuan has a methanol production capacity of 1.3 million tons, and together with Yuanxing’s 600,000 tons, this amount is sufficient to meet Mengda’s needs. However, later on, due to high natural gas costs, Boyuan had to keep its operations suspended. Currently, it has only one production line in operation, with a capacity of 400,000 tons. China Coal Yuanxing Energy has a production capacity of 600,000 tons; it is located 200 kilometers away from Mengda, and all of its output is purchased by Mengda. At present, in addition to Yuanxing Energy, Mengda also sources methanol from plants within a 400-kilometer radius; the region has sufficient methanol production capacity to ensure stable supply. The purchase price is set according to market rates, with reference also being made to the prices listed on websites such as Jinchuang and Zhuochuang. As a major customer, a slight discount is also available. The method of purchasing methanol is that China National Coal Group enters into a broad framework agreement with nearby methanol plants; thereafter, Mengda negotiates directly with them regarding prices and settlement terms. Settlements are made weekly, in the form of advance payments. It is available in approximately that length, and there is a small amount in stock, but very little indeed, as the smaller methanol plants in the vicinity sell to Mengda at lower prices, and they are also unwilling to sell to Mengda in small quantities. Monda generally prefers to cooperate with large manufacturers capable of producing 300,000 to 600,000 tons, in order to ensure a stable supply of materials and consistent production. Regardless of whether the purchased methanol is produced from natural gas or coal, it’s all the same; what matters is that it meets the manufacturer’s quality standards as refined methanol. It can be stored in the same tank. The energy consumption for methanol is 3.05 tons of methanol to produce one ton of polyolefins. Raw materials account for 65-70% of the total cost, while equipment depreciation is calculated at 40 million per month over a period of 15 years; depreciation costs make up 7-8% of the total cost. Currently, the profit is around 500. The factory’s methanol storage capacity is 70,000 tons, with a monthly consumption of 150,000 tons; therefore, the inventory level is kept at around 80%, or about 50,000 tons. Yuanxing has pipelines that lead directly to the factory, so there is no need to stock up on methanol. Even when its price is low, the limited storage capacity still poses a constraint. 4. In terms of inventory, the company currently has 10,000 tons each of PPPE in stock, with an inventory level of 5,000 tons for each of these materials. This figure is lower compared to the levels seen in the first and second quarters. Inventory levels usually peak during the Spring Festival, after which they decrease. 5. In terms of sales, they are handled uniformly by China Coal Sales Company in Beijing; the factory is responsible only for production and loading, while the sales company is in charge of distribution. The warehouse in another location is the same as that of China Coal Yulin, and the products there are identical; both are sold by the Beijing-based sales company. Settlement with the sales company is also based on market prices. 6. In terms of costs, currently the company produces 300,000 tons each of PP and PE. The volume of PE produced is slightly lower, as PE is a copolymer made from the copolymerization of ethylene and butene, whereas PP is a homopolymer; thus, PE production is approximately 10% less. In terms of costs, actually the production costs for PP and PE are roughly the same. However, PE is more expensive. Even so, we don’t adjust the ratio between the two, as there’s very little room for adjustment to begin with. Moreover, sometimes modifying the equipment results in a decrease in production speed, which isn’t cost-effective. Therefore, we generally don’t increase the proportion of PE, even though it would yield higher profits. Currently, by-product C4 is also produced, mainly butylene, which is used for copolymerization; the annual production amounts to about 100,000 tons, which is sufficient for copolymerization needs. If more is required, a small amount is purchased from external sources. 7. Enterprises will adjust the plastic grades accordingly based on market sales conditions, but not in response to changes in raw material prices, as the raw material is always methanol; this is different from the petroleum industry chain. 8. Regarding transportation, the factory purchases methanol at the ex-plant price, and then bids for a transportation company to handle the delivery; it is a long-term contract with monthly invoicing of the shipping costs, which are approximately 80 yuan per ton, or 0.4 yuan per ton-kilometer. And the products are sold at the ex-factory price; the factory is only responsible for loading them onto trucks. 9. In terms of environmental protection, regarding ultra-low emissions in the central and western regions, it is required that these areas achieve such standards by 2020. At present, Mengda is able to meet the **emission standards, but it is still a bit short of the ultra-low standards; for now, this does not have any impact on environmental conditions, though it’s hard to say what will happen in the future. 10. Advantages of coal chemical industry: When comparing the advantages of the coal chemical industry with those of the oil chemical industry, manufacturers believe that from a resource perspective, China has abundant coal but limited oil; therefore, developing the coal chemical industry is in line with China’s resource profile. From an environmental perspective, **control over thermal coal is being imposed, and coal is moving towards the chemical industry – this will also be a major trend in the future. Regarding the price difference between PP and PE, manufacturers believe that due to the large-scale production of PDH, propylene prices will be lower in the future, and raw material fluctuations prevent PP prices from rising. (IV) Shenhua Baotou Coal Chemical Co., Ltd. 1. Company overview: The project was approved in 2004; the company was established in 2005. It began trial operations with raw materials in August 2010, and officially commenced commercial operations in 2011. The company produces 1.8 million tons of methanol from coal and 600,000 tons of olefins from methanol. 2. Regarding raw materials: The company purchases coal from Shendong Coal Group, a subsidiary of Shenhua Group. The distance between them is 150 kilometers. Shendong has a production capacity of 200 million tons, ensuring a stable supply. The factory has its own dedicated railway line; two trains carrying raw coal arrive daily, while one train carrying thermal coal arrives every two days. fifteen years ago, the purchase price was fixed; it was around 300 or so. Starting from 2015, the Bohai Rim Index plus freight costs (the freight from Huanghua Port to Baotou) were used for settlement, with prices adjusted on a monthly basis. Currently, the purchase price for thermal coal is around 380, while that for raw coal is 450. In terms of energy consumption, 1 ton of polyolefins requires 5.5 tons of raw coal; when including thermal coal, the total coal consumption amounts to 7.5 tons. 1.6 tons of raw coal are required to produce one ton of methanol, and 3.05 tons of methanol are needed to produce one ton of polyolefins. For thermal coal, 4,500 kcal coal is used, while for raw coal, 5,500 kcal coal is utilized. The factory produces 95% crude methanol; it contains a small amount of impurities such as ethanol and propanol, which do not affect production and can be directly used in polyolefin production. 3. Regarding load: Currently, the load is operating at full capacity. Since the second half of last year, it has remained at 100–110%. From January to August this year, the load averaged 105%. From January to August this year, 1.4 million tons of methanol and 450,000 tons of polyolefins were produced, generating revenue of 4 billion yuan and a profit of 400 million yuan. In terms of maintenance, since the company began operations, it carried out major maintenance campaigns lasting 30–40 days in the years 11/12/13/14. During those years, the annual production volume was around 500,000–550,000 tons, with an operation rate of 85%, and annual profits ranging from 800 million to 1 billion yuan. By 2015, a one-and-a-half-year maintenance cycle was implemented for the first time; since April 2016, no major repairs have been carried out. A 15-day minor repair is scheduled for next week, mainly due to the fact that winter is approaching in Inner Mongolia. Another major overhaul is planned for next April, so this means a major overhaul every two years; the goal is to achieve one such overhaul every 2-3 years in the future. During maintenance, the entire plant comes to a stop; the impact on production is roughly 1,700 tons per day multiplied by the number of days of maintenance. A minor repair like the one planned for next week would result in a loss of around 1700*15, which is approximately 25,000 tons in terms of production loss. The level of startup load has nothing to do with product prices; it is primarily determined by the operating condition of the equipment. Major repairs are generally planned half a year in advance, while minor repairs are more random. During maintenance, the procurement of corresponding raw materials will also cease. A decrease in load is often due to the catalyst becoming slightly deactivated; the catalyst is generally replaced every 2-3 years. 4. In terms of inventory, the factory has 3–5 days’ worth of raw material stock, while the product inventory is very low. The factory has a storage capacity of 15,000 tons, but currently only 5,000 tons are stored there. This is mainly because the factory has its own dedicated railway line for transporting products; railway transportation is inexpensive and not affected by weather conditions. As a result, the factory ships out its goods as soon as they are available, and there is no seasonal variation in its own inventory, which is different from factories that rely on road transportation. 5. In terms of sales, they are handled uniformly by Shenhua Baotou Sales Company, the same as in the case of Shenhua Yulin. 6. In terms of profits, the current profit margin for coal-based olefins is approximately 2,000 yuan per ton. Compared to traditional oil-based polyolefins, coal-based olefins can break even at oil prices of around $40 per ton; in other words, the cost advantage is not significant, as market prices are still determined by oil-based polyolefins. The company’s by-products include tetra-carbon and penta-carbon propanes, MTBE, etc., with production volumes of only a few tens of thousands of tons each; thus, the profits generated by these by-products are limited. The company’s main profits come from its core products. 7. When switching between different production grades, many factors need to be taken into consideration, including the inventory of butylene available, the sales performance of each grade in the market, as well as the additional costs associated with such a switch. Shenhua Baotou, together with its sales companies, determines the annual plan for grade switching based on these factors; it only takes 1 day to make a grade change. 8. In terms of environmental protection, supervision is quite strict; the environmental protection team comes by 4 days a week. However, since all production activities at Shenhua Baotou comply with regulations, this has no impact on actual production for now. As ultra-low emissions are to be achieved in the western regions by 2020, boilers are currently also being upgraded. 9. For the second-phase project, the polyolefin production capacity is 700,000–750,000 tons, of which approximately 400,000 tons are PP and 350,000 tons are PE. The project is currently undergoing environmental impact assessment, with production set to begin as early as next year, and output could be available by 2021 at the earliest.