China PDH plants to ramp up rates in April on propylene margins, cheap propane feedstock

China's propane dehydrogenation plants are restoring processing rates to up to 100% of capacity in April as they capitalize on recovering propylene margins following months of losses, prompting higher imports of cheaper propane feedstock, trade sources said.

The China petrochemicals market has cheered projections of higher economic activity after first-quarter GDP growth at 4.5% surpassed expectations, following a 3% growth in 2022.

PDH plants including Ningbo Kingfa, Ningbo Huatai, Guangxi Huayi Petrochemical, Jiangsu Sailboat Petrochemical (Jiangsu Shenghong), Fuzhou Zhongmin Energy and Jinneng Chemical have recently awarded several import tenders. These were partly done at the March LPG conference in Quanzhou, trade sources said.

More spot activity from Chinese importers is expected this year as the term-to-spot ratio was reduced for better purchasing flexibility with the decline in feedstock costs. A larger number of petrochemical makers are expected to leverage the improving economics and boost run rates, trade sources said.

PDH operating margins have been recovering since end-January, flipping to positive levels during mid-March, S&P Global Commodity Insights calculations showed.

The calculations were based on the CFR China propylene poly-grade price deducted by the sum of $200/mt conversion fee, $20/mt terminal operation fees, and a 1.2 multiplier applied on the propane CFR South China price as a nominal amount to convert propane to propylene to arrive at the processing margin.

"Propylene margins are positive and evident from the high run rates of PDH plants," a trade source said.

"The PDH plants are running hard [at high rates] now," a second trade source said.

Propylene demand rebounded as the economy recovered, helping improve the profitability of PDH plants in March when runs were kept low to minimize losses, an industry analyst said.

The market is still cautious as margins continued to weave in and out of positive levels, with downstream demand remaining dull until the economy shows further improvement and propylene oversupply eases.

"High propane prices have hurt PDH plant owners over the past months [January-February], so they will continue to run at high rates now so long as there are margins," a China-based trader said.

The average operating rates at China's 23 PDH plants sank to a historical low 53% in March, down 4% from the previous low of 57% in February, according to data from domestic information provider JLC.

The 23 PDH plants have a combined propylene production capacity of at least 13.67 million mt/year that require up to 16.4 million mt/year of propane feedstock when operating at full capacity.

Chinese PDH plants have kept their operating rates at relatively low levels since 2022 on weak downstream demand and increased capacity, resulting in continued processing losses, market sources said.

With the historical low operating rate in March, the average processing margin of China's PDH plants was estimated at Yuan 333/mt ($48.47/mt) in March, turning positive again for the first time since November 2022, JLC data showed.

Jiangsu Sailboat Jiangsu Sailboat Petrochemical was set to maintain its Lianyungang PDH plant run rate at 100% for April on rising margins. It has bought via tender 46,000 mt propane from Vitol for May 5-30 delivery at a premium in the low-single digit to May Far East Index assessments, DES Lianyungang, trade sources said.

"The propane feedstock price is low now, so we are running at 100% now," a company source said.

Fujian Meide also has plans to run its 660,000 mt/year Jiangyin PDH plant at 100% in April from 90% in March, citing cheap propane feedstock.

"Our estimates are that China's PDH production rate will move up to an average of 80% by May," a trader said.

China LPG imports

S&P Global analysts estimated Chinese PDH plants would process 12.277 million mt LPG in 2023, up 23.5% from 10.34 million mt last year, on expectations of competitive feedstock prices.

CFR North Asia propane prices averaged $585.46/mt over April 3-19 after easing to average $601.30/mt in March. Prices averaged higher at $735.08/mt in February, S&P Global data showed, as Asia is seeing healthy supplies from the Middle East, the US and elsewhere.

China imported 4.09 million mt LPG in January-February, up 4.6% year on year. US remained the biggest supplier during the period, shipping 1.32 million mt of propane and butane, down 11% year on year, China's General Administration of Customs showed.

Analysts expect China's LPG imports to grow double digits in 2023.