Analysis: Higher PDH run rates boost Chinese propane demand in June

Singapore — Regional demand for propane has seen support in China in recent weeks from higher utilization by the country's propane dehydrogenation plants, market participants said this week.

"Run rates in China during June was at above 90% capacity," according to a Chinese LPG buyer. A Chinese PDH operator concurred. "PDH plants are running close to full capacity in China at the moment," the source said.

China's propane dehydrogenation plants operated at an average rate of 79% in May, up from an average of 77% in April and lower than the 87% seen a year ago, S&P Global Platts calculations based on data from domestic information provider JLC showed June 11.

Cheap feedstock propane prices coupled with gains in the downstream propylene market saw Chinese PDH margins make a steady recovery in June, averaging $190.75/mt based on Platts calculations, the highest in three months.

Platts assessed CFR South China refrigerated propane cargo at $315.50/mt July 6, up $4.50/mt from the previous close, while CFR China propylene poly grade was assessed at $810/mt July 6, unchanged over the same period.

Assuming a breakeven for propylene production via the PDH process to be 1.2 times the cost of feedstock propane plus a $200/mt conversion fee, Chinese PDH margins were estimated at around $231.40/mt on July 6, based on Platts calculations.

PDH margins healthy on tight propylene

Industry sources said that the recent resilience in propylene prices was due to strong demand for downstream products such as polypropylene, 2-ethyl hexanol and normal butanol.

"Zhejiang Sanyuan and Ningbo Kingfa had trouble and shut down in end-June for a brief period. It has impacted market with less supply, although they are trying to raise operation currently," said a South Korean producer on how the recent unexpected shutdown among the propylene producers in China has pushed up the demand for imports.

Meanwhile, supply from South Korea was also heard to be tight as domestic buyer Lotte had snapped up spot material to feed its downstream plant, which limits spot material to China, according to market sources.

Downstream polypropylene sales, meanwhile, have been stable through June, with the overall run rate of Chinese PP plants remaining healthy at around 85%-88% of the total capacity in the past few weeks, according to sources.

Strong demand for packaging and medical applications, including masks and protective gowns, continues to provide support to the Chinese PP market.

Nevertheless, Chinese trade participants said they were concerned about the limited export orders for plastic-related finished goods amid the global pandemic and a slowing economy.

"PP co-polymer demand remains under pressure in automotive and household sectors", a Chinese trader said.

PDH plant startups to cap propylene gains

Looking ahead, market participants expect further gains in Chinese propylene prices to be capped by higher run rates and the new PDH plant startups on the horizon.

China's Oriental Energy plans to start up its new PDH plant in Ningbo around September-October, after it was delayed from late June, Platts reported earlier.

The new PDH plant has the capacity to produce 660,000 mt/year of propylene and the company will bring on stream two downstream 400,000 mt/year polypropylene plants at the same venue.

Another new plant addition likely in Q3 is by Fujian Meide Petrochemical, a wholly-owned subsidiary of China Flexible Packing Group.

The company is planning to start up its newly-built PDH plant in Jiangyin, Fujian province, around September this year, a pushback from June, a company source said earlier.

The PDH plant has the capacity to produce 660,000 mt/year of propylene and will use 795,000 mt/year of propane as feedstock when operating at 100% capacity.

China remains reliant on propane imports

The two new PDH plants, in addition to the recent startup of Zhejiang Petrochemical's 600,000 mt/year PDH plant in Zhoushan, will add an additional 1.92 million mt/year in Chinese propylene output, and increase China's annual propane demand by around 2.3 million mt, according to Platts calculations.

China remains heavily reliant on propane imports for the domestic PDH industry, market sources said.

"Most Chinese PDH plants cannot use domestic material due to quality issues, so their propane will have to be fully imported from the US and/or the Middle East," said a Chinese LPG importer.

Importers of LPG into the country were given a boost earlier this year after Beijing accepted tariff exemptions on US LPG from March following imports from the US being halted for nearly one-and-a-half years due to trade tensions.

China's LPG imports from the US soared to 733,385 mt in May, a record high monthly import volume from the country, comprising 629,822 mt of propane and 103,563 mt of butane, making the US the largest LPG supplier to China in May, latest data from China's General Administration of Customs showed.