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Asian expansion to increase European propylene imports



Global Propylene Outlook

By Amar Carmody


A gradual rise in European propylene and polypropylene imports seen in 2016 is expected to continue in 2017, as fresh Asian capacity comes online and new European projects fail to materialize.


Before 2016, European propylene fundamentals had typically been balanced. Through the last year, however, surpluses became commonplace, mainly due to supply growth outside Europe, rather than changing fundamentals within the continent.


EU propylene imports were up 6% on the year for the period of January - October at 303,580 mt.


And according to Platts Analytics, the European propylene market is expected to come under pressure due to a further increase in imports this year as new Asian capacity comes online and redirects Middle Eastern material to Europe.


In 2017, Asia looks to lead the way in supply growth, while the US is also expected to increase propylene supplies from its refineries.


Although ethane and LPG cracking is on the rise in Europe (which yields less propylene per mt of ethylene compared to the main feedstock used, naphtha), reducing European production, this drop will be more than made up for by increased propylene and related derivatives production in 2017 - welcome news to buyers.


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ASIA SET UP FOR A 2017 SUPPLY GLUT

In 2017, Asia is set to experience a propylene supply glut. A spate of new on-purpose propylene supply amid a relatively light steam cracker maintenance schedule has led to expectations that Asia will see propylene length through the year.


In addition, existing on-purpose propylene producing units, namely, propane dehydrogenation (PDH) plants which started production through 2015 and early 2016, are now seeing more stable production.


In 2017, the addition of four PDH plants in China is expected, adding 2.21 million mt/year of propylene supply to Asia. These will follow three Chinese PDH plants that were completed in 2016, adding 1.76 million mt/year of propylene supply.


China's Oriental Energy started up a new PDH plant at Ningbo in November 2016, making it the eighth PDH plant in the country.


The plant, which has a propylene production capacity of 660,000 mt/year, follows that of Hebei Haiwei's in northern China. Hebei Haiwei has been producing propylene as of September from the 500,000 mt/year propylene output unit.


Propane prices, which are expected to remain lower than naphtha in 2017 because of an abundance of supply, should encourage PDH producers to take advantage of this and operate their plants at high rates.


Seven major PDH plants in China are estimated to have run at an average 77% of their processing capacity in November, up from around 67% in October.


New PDH supply, both from new plants and as older PDH units iron out their operational issues and stabilize their run rates, could weigh on propylene prices in 2017.


Adding to this will be on-purpose production from coal-to-propylene units: four Chinese projects due for completion in 2017 will total 1.7 million mt/year of propylene capacity. Coal-to-propylene-producing units are the second cheapest after US PDH plants, according to S&P Global Platts models, due to China's relatively low domestic coal prices.



ASIA'S SELF-SUFFICIENCY MEANS MORE AVAILABILITY TO EUROPE

The new wave of on-purpose propylene production is likely to impact Europe the same way a supply boost did in 2014, when China saw four PDH additions.


These, in addition to bringing Asia as a whole towards self-sufficiency, also encouraged exports. It also meant that regular imports arriving on Far East shores from the Middle East were shunted out and forced to find homes elsewhere.


Imports of propylene into Europe from Asia and the Middle East have, between the months of January and October last year - the latest month for which data are available - totaled 37,297 mt, with similar volumes seen in the same period of 2015 and 2014. In 2013 prior to the first wave of on-purpose propylene expansion, imports in the first 10 months of the year were at 15,614 mt.


Propylene had also made its way from Asia and the Middle East to Europe in more than just its basic form. Of greater impact, major derivative polypropylene had seen a similar doubling of imports into Europe from 2014 onwards. Imports of PP into Europe were at 657,363 mt in January-October 2016 compared to 388,910 mt in the same months of 2013.


Asian PP capacity growth is estimated to outpace demand growth from the region by 760,000 mt in 2016, according to Platts Analytics, which is likely to encourage a marked step up in exports to other regions.


Increases in exports from Asia and the Middle East should also be encouraged by a light cracker turnaround schedule. Only half of the 1.75 million mt/year of propylene capacity that went offline in 2016 will go offline in 2017.


In the US, lower gasoline prices brought increased demand, which as a side-effect of increased gasoline output, resulted in increased refinery-grade propylene (RGP) production. The rise in production helped contribute to higher inventory levels through 2016.


US propylene stocks for non-fuel use were at 4.652 million barrels for the week ending December 9, US Energy Information Administration data showed.


Over the course of the year, stocks climbed 48% from the beginning of 2016 when they were at 3.152 million barrels.


US propylene markets generally move in unison. RGP can be further purified into polymer-grade propylene (PGP), or it can be used in the production of alkylate, a high-value gasoline blend stock.



EUROPEAN PDH PLANS, RECOGNITION OF PROPYLENE NEED

Increases in both Asian and US propylene production should be welcome news for buyers of propylene derivatives in Western Europe, who expect lower propylene output for years to come.


Lower refinery margins on projected increases in crude prices will mean less propylene available from refineries, sources have said. A rise in the use of ethane as a feedstock at steam crackers at the expense of naphtha will also curb European propylene supply.


Naphtha, which produces a healthy yield of propylene, accounts for some 67.5% of all ethylene produced in 2016, but this is expected to fall to just over 64% by 2026 as many companies ship and crack cheap US ethane, which yields very little propylene.


Declining European propylene output, coupled with concern following an unprecedented number of polymer outages which hit European converters in the summer of 2015, led to a greater reliance on PP imports in 2016.


European PP imports from January-October were up 21% year on year to 882,857 mt, the latest data from Eurostat showed.


The reliance on PP imports in expected to grow in 2017, European converters have said. However some have seen an opportunity in this situation.


Austria-based Borealis said in September it would look at developing Europe's fourth PDH plant, a 740,000 mt/year plant in Kallo, Belgium.


"In Europe propylene demand is increasing while the supply growth from steam crackers and refineries is slowing down," Borealis VP Thomas Van De Velde said in late September. "With the market tightening, an on-purpose propylene investment is needed to ensure a reliable platform for continuous, long-term growth in propylene and its derivatives in Europe."


The announcement came 18 months after chemical company Grupa Azoty said it would also build a PDH plant, this time in Poland and with a capacity of 400,000 mt/year.


The two new investments will double the number of on-purpose production facilities for propylene in Europe by 2021 and take the total PDH capacity to almost 2 million mt, up from around 800,000 mt now.


Country Production Method Producer Location Propylene Capacity (mt/year) Start-up
China PDH Haiwei Group Hengshui, Hebei 500,000 Q1 2016
S Korea PDH SK Gas/Saudi APC Ulsan 600,000 Q2 2016
China PDH Jiangsu Haili Dafeng, Jiangsu 750,000 Q3 2016
China PDH Ningbo Fortune Ningbo, Zhejiang 660,000 Q4 2016
China PDH Fujian Meide Fuzhou, Fujian 660,000 Q1 2017
China PDH Tianjin Bohai Tianjin 600,000 Q2 2017
China PDH Guangdong Peng Zhanjiang 450,000 Q3 2017
China PDH Haiwei Group Hengshui, Hebei 500,000 Q4 2017
Kazakhstan PDH Kazakhstan Atyrau 500,000 2017
China CTO Shaanxi Yulin ECC Shaanxi, Yulin 600,000 2017
China CTO Shenhua Group Xinjiang, Urumqi 450,000 2017
China CTO Shenhua Xiwan Shaanxi, Yulin 300,000 2017
China CTO Sinopec/WanbeiCEG Anhui, Huainan 350,000 2017







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