China PDH Capacity Expansion and Influence
In recent years, China’s PDH capacity kept expanding, and the proportion of PDH capacity in the total propylene capacity went up, attracting a lot of eyeballs. With PDH capacity expansion, profits of PDH units went down year by year and even became negative, dragging down operating rates of PDH units. In the future, China’s PDH capacity is likely to continue to expand. Given the mediocre profitability, market participants need to pay attention to feedstock source and industrial chain extension.
China PDH capacity expansion
There were three rounds of PDH capacity expansion in China. From 2013 to 2016, 8 PDH units were put into use in China, and the total capacity reached 4,610kt/a. These PDH units were located in North China, Shandong and East China. Supported by the favorable profitability and relatively high yield, China’s PDH capacity expanded rapidly. From 2017 to 2018, there was no newly added PDH capacity, as the former capacity was quick and China’s propylene market experienced severer supply pressure. From 2019 to 2022, China’s PDH capacity rose quickly. 16 PDH units came on stream, and the total capacity was 8,160kt/a. Moreover, these PDH units were located not only in Shandong and East China, but also South China, Northwest China and Northeast China. Accordingly, impacts of PDH capacity strengthened, and more market participants paid attention to the PDH market.
According to China’s propylene production technology structure, the proportion of PDH capacity kept rising. From 2017 to 2022, the proportion of PDH capacity increased from 15% to 24%. It is estimated that that the proportion of PDH capacity will rank first in 2023 with the intensive PDH capacity expansion.
China’s PDH capacity expansion led to severer market competition.
With the rapid PDH capacity expansion, China’s propylene capacity hit a historical high level. Most PDH producers were new entrants, so the propylene market participants kept rising. China’s propylene industry scale further enlarged, attracting a lot of eyeballs.
However, China’s propylene market competition also intensified with more entrants, so the overall industry profitability waned. As seen from the chart above, profits from producing propylene via all production technologies fluctuated downward and became negative in 2022. Therein, PDH unit profits saw the most notable declines. In 2022, the average PDH unit profit was RMB -903/mt, down 255% Y-O-Y. As of the end of February, PDH unit profits averaged RMB -1,245/mt in 2023, down 94% Y-O-Y.
Influenced by the profit losses, the overall PDH industry operating rate was unstable. In recent three years, China’s PDH unit operating rates fluctuated notably, and the average level dropped below 80%. Accordingly, China’s propylene market experienced oversupply pressure.
Entering 2023, the overall PDH unit operating rate further declined, and many units took overhauls in succession. As of the end of February, the average unit operating rate dropped below 70%. It is estimated that the overall PDH unit operating rate will continue to decline in March, and some PDH units may remain shut down. Moreover, some units will probably be shut down for maintenance. Overall, it is predicted that China’s PDH unit operating rates will average about 60% in March, hitting a new low.
Feedstock put a damper on propylene industry development, and China’s propylene supply gradually became surplus.
China’s PDH units mainly adopt imported propane as feedstock. With PDH capacity expanding, the demand for propane increased rapidly. Accordingly, China’s propane prices kept rising. From H2, 2021 to February 2023, propane prices hovered at highs, so the PDH production costs were high, dragging down the overall production profits. Meanwhile, China’s propylene supply gradually became surplus in the wake of continuous capacity expansion, so propylene prices remained low. Although most PDH units were matched with downstream units, the overall propylene industrial chain experienced oversupply pressure, especially propylene industry and PP industry. Both propylene and PP prices went down, and most PDH units were matched with PP units. Accordingly, the overall propylene industry profitability underperformed.
China’s propylene capacity is likely to further expand, and the propylene market competition will probably be severer.
China’s PDH capacity will probably continue to expand rapidly, and the newly added PDH capacity may surpass 9,000kt/a, but there will probably be uncertainties in the unit startup. Newly added PDH units are likely to concentrate in Shandong, East China and South China, and some enterprises will probably expand their PDH capacity, such as Shenzhen Grand Resource, Zhejiang Huahong New Material, Jinneng Chemical (Qingdao) and Fujian Meide Petrochemical. Moreover, the capacity of single PDH unit will continue to rise, and the capacity of one PDH unit at China ZhenHua Oil will reach 1,000kt/a, hitting a historical high level. Accordingly, China’s propylene market competition will probably be severer.
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