The risk of overcapacity in the propylene industry is emerging

Thread Content

This post was last edited by yinkuilin6868 on 2015-11-23 08:30. This year, the price of propylene has remained weak both domestically and internationally; as of the end of October, propylene (FOB, South Korea) had fallen by 12.1%, while ethylene (CFR, Northeast Asia) had risen by 7.5%. During the same period, WTI dropped by 13.5% and Brent by 14.9%. It can be seen that the propylene market follows the decline in crude oil prices closely, showing a huge difference compared to the performance of its \"relative\" ethylene. The propylene market in Shandong experienced a sharp decline in mid-August; by the end of September, the price of propylene had dropped by nearly half of its original value, with the rate of decline even exceeding that seen during last year’s plunge in crude oil prices. Industry experts predict that the rapid growth in production capacity in the propylene sector increases the risk of overcapacity, and unless the imbalance between supply and demand is resolved, the situation in the propylene market is unlikely to see significant improvement. Globally, propylene is the second most important organic raw material in the petrochemical industry. By the end of 2014, the world’s total production capacity was around 110 million tons, while the total demand was approximately 89 million tons. Although propylene yields are lower than those of ethylene, its sources and downstream derivatives are more complex and varied than those of ethylene. Since 2008, the extensive use of low-cost ethane in the Middle East and North America as a feedstock for ethylene cracking has resulted in less propylene being produced as a by-product, posing significant challenges to the propylene supply. Against this backdrop, the petrochemical industry began to seek several process technologies dedicated to producing propylene, and propane dehydrogenation (PDH) as well as coal/methanol-to-olefins (CTO/MTO) technologies emerged as key options. Domestic companies are also keeping up with global trends, with numerous propane dehydrogenation and coal/methanol-based olefin production projects being launched. In August 2010, Shenhua Baotou’s 600,000 tons per year coal-to-olefins project was officially put into operation ； In October 2013, Tianjin Bohai Petrochemical’s 600,000 tons per year propane dehydrogenation project also went into commercial operation. New technologies for increasing propylene production, together with existing petroleum-based processes such as steam cracking, catalytic cracking, and olefin conversion, have created a new landscape of diversified sources of propylene. The sharp drop in crude oil prices that began in the second half of 2014 introduced significant changes to the global propylene market landscape: traditional naphtha cracking became much more competitive due to the low cost of its raw materials ； The narrowing price gap between propane and propylene is causing propane dehydrogenation projects to gradually lose their attractiveness ； Domestic coal-to-olefins projects are no longer encouraged by policy due to significant environmental concerns, and methanol-to-olefins projects have also lost their cost advantages. According to foreign media reports, of the 9 propane dehydrogenation projects announced initially in North America, only 3 are still under construction; 2 have been canceled, while the other 4 projects are pending. The same is true for many propane dehydrogenation and coal/methanol-to-olefins projects in the country, with a large number of them being postponed or canceled. According to statistics from Chemical Online, as of the end of October this year, China’s total propylene production capacity had reached over 28 million tons. This year, an additional capacity of more than 3 million tons was added, resulting in a production capacity growth rate of over 10%. Among the larger-scale projects that came online this year are Xingxing New Energy’s 690,000-ton/year MTO plant, Yangtze River Petrochemical’s 600,000-ton/year PDH plant, and Wanhua Chemical’s 750,000-ton/year PDH plant, among others. According to Chemical Online, the current production capacity of propylene from oil-based routes is around 19 million tons, accounting for 67% of the total propylene production capacity ； The capacity of the coal/methanol-based olefin production route is around 5.6 million tons, accounting for 20% of the total propylene production capacity ； The production capacity of the propane dehydrogenation route is around 3.7 million tons, accounting for 13% of the total propylene production capacity. With the commissioning of new facilities, propylene production this year also exceeded that of the same period last year, while imports decreased accordingly. According to customs statistics, the cumulative import volume from January to September this year was 2.05 million tons, a 9.6% decrease compared to the same period last year. In November this year, two larger projects are expected to come online, namely the 600,000 tons per year MTO project of China Coal Mengda and the 600,000 tons per year MTO project of Shenhua Shaanxi. Currently, with international crude oil prices remaining low and China’s GDP growth slowing down, the rapid introduction of new production capacity coupled with weak demand from downstream industries will lead to more intense competition in the propylene market. The entire industry will face significant risks associated with overcapacity.