【Haichuan Chemical Salary Updates】Zhejiang Petrochemical joins forces with Demei Chemical to expand the deep processing of ethylene cracking by-products C5 and C9

Zhejiang Derong Chemical Co., Ltd. will use C5/C9+ derived from Zhejiang Petrochemical as raw materials to build six main production units at the Yushan Island Green Petrochemical Base in Zhoushan City, including C5 separation units, isoprene resin production units, pentane hydrogenation units, hydrogenated DCPD resin production units, C9 separation/hydrogenation units, and C9 hydrogenation resin production units. Apart from some resin products being exported, over half of the products are supplied back to Zhejiang Petrochemical, creating a relationship of mutual supply and dependence, with each party acting as both a supplier and a customer to the other. Guangdong Demei Fine Chemicals Group Co., Ltd. (hereinafter referred to as the “Company”), Zhejiang Petrochemical Co., Ltd. (hereinafter referred to as “Zhejiang Petrochemical”), and the Company’s wholly-owned subsidiary, Foshan Shunde Meilong Cyclopentane Chemicals Co., Ltd. (hereinafter referred to as “Meilong Cyclopentane”), have entered into discussions regarding a joint capital increase for Zhejiang Derong Chemicals Co., Ltd. (hereinafter referred to as “Derong Chemicals”), which is a subsidiary controlled by the Company, in proportion to their respective capital contributions. The proposed amount of this capital increase is 100,000 million RMB, and after the increase, Derong Chemicals’ registered capital will be 102,000 million RMB.

Zhejiang Derong Chemical Co., Ltd. will use C5/C9+ derived from Zhejiang Petrochemical as raw materials to build six main production units at the Yushan Island Green Petrochemical Base in Zhoushan City, including C5 separation units, isoprene resin production units, pentane hydrogenation units, hydrogenated DCPD resin production units, C9 separation/hydrogenation units, and C9 hydrogenation resin production units. Apart from some resin products being exported, over half of the products are supplied back to Zhejiang Petrochemical, creating a relationship of mutual supply and dependence, with each party acting as both a supplier and a customer to the other. Guangdong Demei Fine Chemicals Group Co., Ltd. (hereinafter referred to as the “Company”), Zhejiang Petrochemical Co., Ltd. (hereinafter referred to as “Zhejiang Petrochemical”), and the Company’s wholly-owned subsidiary, Foshan Shunde Meilong Cyclopentane Chemicals Co., Ltd. (hereinafter referred to as “Meilong Cyclopentane”), have entered into discussions regarding a joint capital increase for Zhejiang Derong Chemicals Co., Ltd. (hereinafter referred to as “Derong Chemicals”), which is a subsidiary controlled by the Company, in proportion to their respective capital contributions. The proposed amount of this capital increase is 100,000 million RMB, and after the increase, Derong Chemicals’ registered capital will be 102,000 million RMB.

Project Feasibility Analysis (I) Background for Investing in a Project for the Comprehensive Utilization of By-products from Ethylene Cracking Zhejiang Petrochemical is investing in a refining and chemical processing complex with an annual capacity of 40 million tons in the Green Petrochemical Base on Yushan Island, Daishan County, Zhoushan City. The project mainly involves the construction of facilities such as crude oil terminals, storage areas, transportation systems, refining/chemical production units, processing plants, facilities for transporting products, and supporting services. Currently, this project has been included in the **13th Five-Year Plan for the petroleum and chemical industry**, and it represents an important expansion area for the Ningbo petrochemical industrial base that is being developed with priority. Derong Chemical invested in the construction of a project for the comprehensive utilization of by-products from ethylene cracking, which utilizes the C5 and C9 compounds generated as by-products in Zhejiang Petrochemical’s ethylene refining projects with capacities of 40 million tons per year and 2.8 million tons per year, to carry out further processing. Once the integrated refining and chemical processing project at Zhejiang Petrochemical is completed and put into operation, it will generate over 400,000 tons of pyrolyzed C5 and 400,000 tons of pyrolyzed C9 by-products each year. These by-products are rich in isoprene, cyclopentadiene, mesitylene, and other dienes; due to their unique molecular structures and chemical properties, these dienes can be processed into a range of high-value derivatives. The construction of this project is in line with the policies aimed at promoting the development of the fine chemical industry. Meanwhile, the strong demand for petrochemical and fine chemical products in Zhejiang Province ensures that this project has good market prospects.

Project Feasibility Analysis (I) Background for Investing in a Project for the Comprehensive Utilization of By-products from Ethylene Cracking Zhejiang Petrochemical is investing in a refining and chemical processing complex with an annual capacity of 40 million tons in the Green Petrochemical Base on Yushan Island, Daishan County, Zhoushan City. The project mainly involves the construction of facilities such as crude oil terminals, storage areas, transportation systems, refining/chemical production units, processing plants, facilities for transporting products, and supporting services. Currently, this project has been included in the **13th Five-Year Plan for the petroleum and chemical industry**, and it represents an important expansion area for the Ningbo petrochemical industrial base that is being developed with priority. Derong Chemical invested in the construction of a project for the comprehensive utilization of by-products from ethylene cracking, which utilizes the C5 and C9 compounds generated as by-products in Zhejiang Petrochemical’s ethylene refining projects with capacities of 40 million tons per year and 2.8 million tons per year, to carry out further processing. Once the integrated refining and chemical processing project at Zhejiang Petrochemical is completed and put into operation, it will generate over 400,000 tons of pyrolyzed C5 and 400,000 tons of pyrolyzed C9 by-products each year. These by-products are rich in isoprene, cyclopentadiene, mesitylene, and other dienes; due to their unique molecular structures and chemical properties, these dienes can be processed into a range of high-value derivatives. The construction of this project is in line with the policies aimed at promoting the development of the fine chemical industry. Meanwhile, the strong demand for petrochemical and fine chemical products in Zhejiang Province ensures that this project has good market prospects.

With the improvement of shale gas technology in the United States and its wider application, as well as the development of new energy vehicles, the number of ethylene production plants that utilize C5 and C9 feedstocks is decreasing, resulting in an increasingly limited supply of these resources. De Rong Chemical’s main raw materials come from Zhejiang Petrochemical’s 2.8 million tons per year ethylene production facility, which is currently the largest source of raw material supply in China. With all raw materials secured, they and the finished products are transported directly through pipelines, thereby significantly reducing management costs and improving operational efficiency in terms of measurement and storage. Derong Chemical will also leverage the well-developed utility facilities such as water, electricity, and steam, as well as auxiliary facilities like chemical docks, provided by Zhejiang Petrochemical’s integrated refining and chemical processing project, in order to reduce investment and operational costs and improve construction and operation efficiency; this gives it a significant cost advantage.

(II) Key details of the investment in the project for comprehensive utilization of by-products from ethylene cracking 1. Project content and scale: In line with the scale of Zhejiang Petrochemical’s integrated refining and chemical processing project, Derong Chemical will use the C5 and C9 by-products resulting from that project as raw materials, and plans to build a C5 separation facility with an annual capacity of 400,000 tons, a C5 hydrogenation facility with an annual capacity of 180,000 tons, and a mesityl resin production facility with an annual capacity of 70,000 tons； A 100,000-ton/year hydrogenated DCPD resin plant, a 400,000-ton/year pyrolyzed C9 separation and hydrogenation plant, and an 80,000-ton/year C9 cold-polymerized resin plant. The main products include isopentadiene resin, hydrogenated DCPD resin, DCPD thermopolymer resin, industrial dicyclopentadiene, industrial isoprene, C4 and C9 cryopolymer resins, cyclopentane, refined C5, crude isoprene, mixed aromatics, heavy aromatics, pyrolyzed naphthalene fractions, as well as various other fine chemical products and by-products from the petrochemical industry.

2. Project investment estimate: (1) The estimated investment for the construction of this project is 3.253 billion RMB, of which the construction cost is estimated at 3.033 billion RMB, while the working capital and interest requirements are estimated at 220 million RMB. (2) The company and its wholly-owned subsidiary, Meilong Cyclopentane, shall fund this project with their own capital or funds raised through financing channels. 3. Project investment and construction progress: The project is constructed in two phases. Phase 1 will come online simultaneously with Phase 2 of Zhejiang Petrochemical (expected in the second half of 2020), while Phase 2 will go into operation half a year after Phase 1 is completed. The investment for the first phase of the project is estimated to be 2.333 billion yuan ； The total investment for Phase 2 of the project is estimated at 699 million yuan.

(III) Project Development Prospects: Derong Chemical plans to build production facilities such as a 400,000-ton/year C5 cracking and separation unit, an 180,000-ton/year C5 hydrogenation unit, a 70,000-ton/year isoprene resin unit, a 100,000-ton/year hydrogenated DCPD resin unit, a 400,000-ton/year C9 cracking, separation, and hydrogenation unit, and an 80,000-ton/year C9 cold-polymerized resin unit. These facilities will be used to produce high-value-added products such as isoprene resin, crude dicyclopentadiene, isobutylene, cyclopentane, hydrogenated DCPD petroleum resin, hydrogenated C9, and C9 cold-polymerized petroleum resin. 1. Main product applications: The downstream uses of isopentadiene petroleum resin are primarily in hot-melt coatings, road marker paints, paints, adhesives, and additives. It has a wide range of application areas, with over 70% of its main consumption markets located in the coastal regions of East China and South China ； The main markets for crude dicyclopentadiene are its use in modified unsaturated polyester resins (UPR), petroleum resins, and fine chemicals; East China, South China, and North China are its primary consumption areas ； Polymer-grade isoprene is produced through separation to meet the strong demand from downstream industries for using isoprene rubber as a substitute for natural rubber; isoprene rubber has always been the most important application area for polymer-grade isoprene ； Cyclopentane products are mainly used in the refrigerator and freezer industry, and are one of the main alternatives to the HCFC-141b blowing agent ； DCPD hydrogenated petroleum resin is primarily used in the adhesive industry, with East China and South China being the main consumption areas for this product in China ； DCPD resins can be used to produce high-grade anti-corrosion paints for ships, while high-quality DCPD resins are widely used in the production of automotive components, ranging from ordinary items such as seats, door panels, and bathtubs to high-tech applications like rocket launch tanks ； Mixed aromatics can be used as aromatic solvent oils; due to their high octane rating, they are also widely used as components in gasoline blending. There is a substantial market demand for them in regions such as East China and South China ； Carbon-9 cold-polymerized petroleum resin is mainly used in paints, coatings, and inks, with East China and South China being its main markets.

2. Market Opportunity Analysis: The adhesive industry represents an important downstream application for petroleum resins. Over the next five years, it is expected that the growth rate of hot melt adhesives will remain at a high level of around 6%. Additionally, the increasing acceptance and use of disposable sanitary products in China and other emerging markets will also drive up the demand for petroleum resins. At present, the high-end and specialty petroleum resins used by domestic enterprises still rely largely on imports. Derong Chemical will focus on developing the high-value-added market in China and promoting the use of petroleum resins in new fields. In recent years, there has been a growing trend toward lighter feedstocks for pyrolysis abroad, and the availability of C5 and C9 feedstocks suitable for such processes is decreasing year by year. As a result, the increase in the overall supply of C5 and C9 feedstocks over the next five years will mainly occur in China, which is set to become the world’s main supplier of petroleum resins. The shortage of foreign products creates opportunities for expanding exports.