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Advantages fading; caution is needed in the development of coal-based polypropylene. Author/Source: Sinochem New Network. Date: May 28, 2021. Clicks: 3. Recently, the polypropylene market has been highly volatile. As of May 24, the main domestic polypropylene futures price was 8,371 yuan per ton (the same unit applies below), down by about 1,000 yuan compared to March 1. “With overcapacity arriving at an accelerated pace and demand on the downstream side being limited, the polypropylene market is expected to remain under pressure in 2021, especially as coal-based polypropylene manufacturers face increasing operational pressures. ”Dr. Li Jingge, a senior engineer at the Datang Chemical Technology Research Institute who has been tracking the development of China’s polypropylene industry for a long time, warns polypropylene manufacturers produced from coal that competition will intensify further in the future, and companies need to prepare ahead of time. Overcapacity is arriving at an accelerated pace. In recent years, the production capacity of polypropylene has been continuously expanding, with capacities increasing steadily. Li Jinge said that overall, the polypropylene industry has undergone several major expansions over the years. The first time was during the period of refinery and ethylene capacity expansion from 2006 to 2008 ； The second time was in 2014, during the period of expansion in the coal chemical industry ； The third time was during the era of large-scale petrochemical production from 2020 to 2021. With rapid expansion of production capacity, intensified competition in the polypropylene market is only logical. According to statistics, the total domestic supply of polypropylene in 2020 was 28.82 million tons, an increase of 15.25% compared to the previous year. Among them, oil-based polypropylene, coal-based polypropylene, and propylene dehydrogenation-based polypropylene account for 55%, 19%, and 10% respectively. In 2020, China’s apparent consumption of polypropylene was approximately 31 million tons, an increase of 18.43% compared with the previous year. In 2020, 4.61 million tons of polypropylene were imported, accounting for 14.9% of the total consumption. It is worth noting that in 2020, driven by the demand for pandemic-related supplies, the sales volume of polypropylene increased significantly compared to previous years. Nevertheless, by 2020, China’s polypropylene production capacity and consumption were already very close to each other; taking imports into account, the domestic polypropylene market was actually facing a situation of supply exceeding demand. “It is estimated that the total domestic production capacity of polypropylene will reach 35 million tons in 2021, exceed 45 million tons by 2023, and it is a conservative estimate to expect it to surpass 50 million tons by the end of the 14th Five-Year Plan period. By 2025, the apparent consumption volume of the polypropylene market is expected to be between 40 million and 45 million tons, which will be far below the production capacity. It is foreseeable that an era of structural overcapacity in polypropylene production is approaching. ”Li Jinge said as a reminder. The advantages of the coal-based route are diminishing. China’s coal-based polypropylene industry began to develop in 2005; after more than a decade of rapid growth, it now accounts for nearly 20% of the market share, showing significant progress. It is understood that a large number of coal-based polypropylene projects are currently in the planning and construction phase, and the total production capacity will exceed 15 million tons by 2025. By then, coal-based polypropylene will account for one-third of the polypropylene market. In the past, the biggest advantage of coal-based polypropylene was its cost; most of the time, the cost per ton of oil-based polypropylene was about 1,000 yuan higher than that of coal-based polypropylene. However, by the end of 2018, the cost of coal-based polypropylene was overtaken by that of oil-based polypropylene for a time. In 2020, due to the sharp drop in international oil prices, the cost of oil-based polypropylene fell as well, at one point being 194 yuan lower than the cost of coal-based polypropylene, or even more so. The battle over the costs of polypropylene produced from coal and oil has begun. “Although coal-based polypropylene has certain cost advantages, domestic coal prices have been rising in recent years, resulting in increasing production costs for coal-based polypropylene. ”Li Jinge analyzed that, taking a large coal-to-propylene manufacturing enterprise in the Mengdong region of Inner Mongolia as an example, the price per ton of lignite extracted in that area has risen continuously over the past 3 years, from 133 yuan in 2018 to 207.67 yuan in 2021, representing an increase of 56%. Coal costs account for over 55% of the production costs of coal-based polypropylene. Coal-based polypropylene manufacturers in other regions are also facing pressure from rising coal prices. It is foreseeable that once the integrated refining projects and propane dehydrogenation projects come online in large numbers, the cost advantage of coal-based polypropylene projects will surely be further weakened. In addition, Li Jinge also pointed out that since 2021, the market for polypropylene resin in China has been favorable, and coal-based polypropylene production has generally yielded good profits. However, in the long term, significant challenges lie ahead: firstly, rising coal prices lead to increased production costs ； Secondly, the grades of coal-based polypropylene products are generally uniform, with low added value ； Third, the large-scale commissioning of integrated refining and chemical projects as well as propane dehydrogenation projects will further squeeze the market share of conventional polypropylene products. In addition, policies on carbon peak and carbon neutrality are also beginning to affect coal chemical enterprises. Pursuing differentiation and diversification: In the past, companies producing polypropylene from coal focused on large-scale projects and high production capacities. However, there is now a view that, on this basis, the scale of individual production units should vary, and production processes should also be diversified, as this is more conducive to meeting the demands of market competition. “Currently, some new projects are more flexible in terms of plant scale and process selection, and there is no longer a pursuit of maximizing the size of individual plants. ”Li Jinge gave an example: for instance, the production capacities of Hengli Petrochemical’s (Changxing Island project) facilities are one unit with a capacity of 450,000 tons per year, and two units with a capacity of 200,000 tons per year each ； The two polypropylene units in the CNOOC-Sinopec Huizhou Phase III ethylene project have production capacities of 400,000 tons per year and 280,000 tons per year, respectively ； The three polypropylene units in Phase 1 of the Yulong Island project consist of two units with a capacity of 400,000 tons per year each and one unit with a capacity of 300,000 tons per year. The author has learned that due to the limited size of the downstream markets for many high-performance polypropylene grades, the existing coal-based polypropylene production facilities are generally quite large in scale; a single batch of products produced can have a significant impact on these downstream markets, thereby affecting product prices. Moreover, the performance of similar products on different production facilities is not exactly the same. Due to possible differences in production processes, catalysts, electron donors, etc., the macroscopic mechanical properties of the produced polypropylene products remain the same; however, their microstructures actually differ. These differences have a significant impact on the downstream processed products made from polypropylene, such as crystallization temperature, isotacticity, and film-forming properties. “It is necessary to take into account factors such as plant scale, production processes, market capacity, and downstream market demand. By leveraging the existing production facilities of enterprises, appropriate new grades of polypropylene should be selected, with an emphasis on product differentiation, technological diversity, and variety in plant designs. The selection of equipment should include both large-scale and small-scale options, and production processes should also be diverse, in order to better adapt to the development of the polypropylene industry. ”Li Jinge said.