China’s propylene supply may face a pattern of overcapacity

Propylene industry has experienced the peak of capacity expansion from 2014 to 2016 and a short period of backwardness in 2017. In 2019, new production capacity of propylene has reached an all-time high in recent years, and is expected to increase by 5.86 million tons per year. However, propylene demand growth is slower than capacity growth, self-sufficiency rate will rise again, domestic propylene capacity to catch up with equivalent consumption, or face the situation of excess capacity.

Propylene production capacity in China has expanded rapidly in recent years. Propylene production has increased in all routes. Propylene dehydrogenation (PDH) and coal-based olefins (CTO) have increased significantly by virtue of cost advantages. In addition to the new production capacity of PDH route, the coal-to-olefin (CTO) route has also warmed up, and its new production capacity in 2019 is at a high level over the years. Due to the rising international crude oil prices and other factors, China’s CTO has developed vigorously, especially the rich coal resources in the western region. Now it has formed four CTO industrial bases, namely, Ordos in Inner Mongolia, Yulin in Shaanxi, Ningdong in Ningxia and Zhundong in Xinjiang. By the end of 2018, CTO units had a capacity of about 4.8 million tons per year. In 2019, with the commissioning of Jiutai Energy, Zhongan Coal Chemical Industry and Ningxia Baofeng three projects, propylene production capacity increased by 900,000 tons per year.

At the same time, the new propylene production capacity of new refineries can not be ignored. Under the stimulation of a series of reform dividends such as the liberalization of crude oil import and the decentralization of examination and approval authority, new refineries have opened up the capital channel by obtaining capital operation such as bond financing and equity financing through banks. In 2019, China welcomed large-scale integrated refining and chemical projects such as Zhejiang Petrochemical Corporation and Baolai Group, which are expected to release 1.9 million tons of propylene per year.

It should be noted that although the propylene equivalent consumption increased steadily in 2019, the growth rate continued to slow down. Polypropylene, propylene oxide and acrylonitrile were the three downstream products with fast growth, and their structure proportion increased slightly; the propylene and acrylic acid proportion was the same as in 2017; butanol and octanol proportion decreased slightly.

According to the disclosure, in 2018, China’s propylene production capacity was 34.83 million tons per year, reaching 31.4 million tons, an increase of 5.5% and 9.2% respectively over 2017, and its equivalent consumption was 40.1 million tons, an increase of 7% over the previous year. Propylene production is expected to reach 41.73 million tons per year in 2019, with output of 34 million tons, up 19% and 8.3% respectively from the previous year, while equivalent consumption of 42.1 million tons will continue to slow down to 5%. Data show that China’s propylene supply may face a pattern of overcapacity.