China PDH project delays, dull olefins market prompt below-expected 2023 LPG demand growth

China's LPG demand growth in 2023 is expected to be slower than previous estimates amid sluggish downstream demand from polymer and chemical markets, while many new PDH capacity additions are also delayed so far this year following the macroeconomic slowdown in the country.

LPG demand growth in China is expected to reach about 4.7 million mt in 2023, almost 2 million mt less than estimates in January, according to the forecast by S&P Global Commodity Insights.

S&P Global had forecast at the start of the year that 11 new PDH plants, with a combined propylene capacity of about 6.3 million mt/year, would come online within 2023. But so far, only four of the 11 projects, with a combined capacity of 2.4 million mt/year, have started up.

S&P Global previously estimate that at least 4.2 million mt/year of capacity of seven PDH units could come online by mid-2023. While most of the projects are either completed, or very close to mechanical completion, the only issue is to choose a good timing for the startup, according to S&P Global, adding it is difficult to say which one will be delayed or not.

Thus, the incremental demand from olefin capacity additions in 2022 and new propane dehydrogenation plants slated to start up this year, is expected to require some 2.9 million mt of additional propane imports, around 1.9 million mt below January estimates, according to the forecast.

Other analysts expect most of the new plants to come online within this year, while two or three, with an annual capacity of about 1.2 million to 1.8 million mt, might be deferred into 2024.

While one trade source expects Oriental Energy's Maoming plant in Guangdong province, which has a 600,000 mt/year propylene capacity, to be delayed till next year, a company source said the delay would only be till end-August this year, from mid-August as earlier planned.

The trade source added that Jinneng Science & Technology's second PDH unit in Qingdao which requires 1.08 million mt/year of propane imports, would be delayed till next year. The company couldn't be reached immediately for comment.

Another trade source said six new facilities are expected to start within 2023. These include Jiangsu Ruiheng's 600,000 mt/year plant, Ningbo Formosa Plastics' 600,000 mt/year facility, Quanzhou Guoheng's 660,000 mt/year unit, Donghua Maoming's 600,000 mt/year plant, Li Hua Yi Wei Yuan's 600,000 mt facility.

"For 2024, the new projects are too uncertain. we need to see till end-2023," the second source said adding, "New projects' delay is very normal and may not relate with margins".

Trade sources expect imports in H2 2023 to be around 400,000 mt/month more than that in the first.

Cost factor

With low propane import costs, customs data showed that China's LPG imports in June jumped almost a third on the year to 3.24 million mt, while the daily inflows edged up 1.8% on the month.

Hefty LPG imports in June supported higher PDH run rates and stoked demand from other petrochemical plants.

The average operating rate at China's 24 PDH plants rose to 11-month highs of 69% in June, with the new Yanchang Zhongran Taixing PDH plant starting operations in May.

The average operating rate at China's 25 propane dehydrogenation plants retreated to around 65% in July, with new PDH plant Shandong Binhua New Material starting operations in the month, S&P Global earlier reported, below market estimates of around 73%.

With this backdrop, trade sources expect H2 2023 LPG imports to be around 400,000 mt/month more than in H1.

And if S&P Global's full-year 2023 LPG demand growth projection of 4.7 million mt were realized, trade sources said LPG imports in 2024 might be 6.5 million mt more than this year, of which, 85% are propane, even as projects that were delayed this year, start-up next year.

S&P Global in January had projected China's LPG imports to grow double-digits in 2023 on expectations of competitive feedstock as supply stabilizes, though demand from PDH plants could be moderated by a gradual, yet tentative, recovery in petrochemicals margins.

Some sources cautioned that margins could recede again as propane import costs rebound.

Olefin margins had shown nascent recovery to small profits in Q2 2023, from losses over the past year, largely on declining regional propane prices, allowing Chinese petrochemical makers to import on a selective basis.

LPG prices rebound

But the recent price upsurge is again crimping margins and import of feedstock, trade sources said.

CFR North Asia propane hit the lowest in almost two years, seven months, on June 15 at $469/mt, before rebounding to $674/mt on Aug. 14, a near four-month high, as demand sentiment strengthened ahead of the North Asian winter amid concerns over supply.

Industry sources said if margins for producers worsened, more producers would consider production cuts if olefin prices did not keep up with feedstock costs.

Recent hefty imports have also driven up LPG inventory in June to the highest since 2019, sources said, adding that in June 2020, China's inventory was around 1.9 million mt.

This could limit imports in July and August, as petrochemical makers focus on drawing down stockpiles and use feedstock from domestic refineries to manage costs, trade sources added.