COVID-19: China petchem ops recover with help from crude

19:23 PM | March 13, 2020 | Clay Boswell

Petrochemical operations in China are ramping back up, supported by the slowing spread of coronavirus disease 2019 (COVID-19), government economic measures, and the recent crash in crude oil prices, according to a report issued today by IHS Markit's market advisory service. Polyolefin production is returning to normal, although inventories are high and downstream converters are struggling.

Large Chinese petrochemical producers are returning to normal operations relatively quickly, says the report, which notes that this week's sharp drop in oil and gas prices has improved the profitability outlook, incentivizing optimal operating rates. Small and medium producers are also increasing operations, although most are unlikely to regain optimal levels until next month. Economic support announced by the central and provincial governments is also facilitating a faster recovery, says IHS Markit.

"The steep fall in crude oil prices has made the naphtha-based polyethylene [PE] producers in China—and rest of Asia—very competitive," says the report. "However, the coal-to-olefin [CTO] and methanol-to-olefin [MTO] plants are now struggling due to higher production cash cost."

Converters are still struggling to return operations to normal, and inventory is high at about 20 days. "We expect the PE producers in China to continue operating at optimal rates in the coming weeks as converters return to normal consumption levels," says the report. "However, availability of trucks for transporting finished goods is still a big bottleneck which is constraining downstream operations."

Chinese polypropylene (PP) producers increased operating rates this week despite carrying high inventory of around 19 days. "Since the converters have purchased large quantities during the past three weeks, demand has slowed down," says IHS Markit. "Moreover, the recent fall in feedstock cost has raised expectations of a steep fall in PP prices in the coming weeks. This has slowed down order bookings and hindered the inventory correction process."

IHS Markit expects global light vehicle production to decline 11% year-over-year (YOY) during the first quarter because of COVID-19, resulting in 380,000 metric tons of lost plastics demand and almost 190,000 metric tons of lost PP demand.

Manpower and logistical shortages tied to COVID-19 are likely to delay by three months the startup of several integrated polyolefin projects, says IHS Markit. Sinochem Quanzhou is building 450,000 metric tons/year high-density PE (HDPE), 100,000 metric tons/year of low-density PE (LDPE), and 350,000 metric tons/year of PP capacity at Quanzhou; Longyou Petrochemical Daqing Lianyi is building 200,000 metric tons/year of HDPE, 200,000 metric tons/year of linear low-density PE (LLDPE), and 550,000 metric tons/year of PP capacity at Daqing; and Liaoning Bora Petrochemical is building 350,000 metric tons/year of HDPE, 450,000 metric tons/year of LLDPE, and 600,000 metric tons/year of PP capacity at Liaoning. All of the new units had been slated to begin production in July, but are expected online by October. Other projects are likely to be delayed, as well.

"Late startup of new capacities will support the higher operations and better margins of the existing naphtha-based producers in China," notes IHS Markit.