Propylene Industry Value Chain Analysis
Lead: In recent years, with the changes in cost and market supply and demand, the value chain of the propylene industry constantly changed. The propylene industry gradually fell into profit losses, but some downstream chemical markets performed well, attracting more market attention. Changes in the value chain brought both opportunities and challenges to the market. In the future, how to adjust the industrial structure and enhance the competitiveness of the industry will become the focus of the market.
In recent years, the profitability of the propylene industry has continued to decline affected by rising costs, and the production of coal-based, oil-based, PDH-based propylene has suffered profit losses. At the same time, the production profit of the oxo-alcohols, acrylic acid and other downstream chemical products increased significantly, which showed that the profit of the propylene industry shifted to downstream chemical products. However, in 2022, the profits from producing propylene and downstream products generally declined, and the market competition became increasingly fierce. How did the propylene industry value chain change in recent years? What challenges will the propylene industry face in the future?
The profit of the propylene industry continuously declined, and the profit loss intensified in 2022.
Chart 1 2011-2022 Propylene Cost Comparison by Different Production Technologies
Chart 2 2011-2022 Propylene Profit Comparison by Different Production Technologies
In the past ten years, the cost of propylene fluctuated periodically, but the profitability continuously dropped. In terms of cost, the cost of propylene was relatively high before 2015, and then it showed a regular fluctuation trend. In terms of profit, the overall profit of the propylene industry before 2020 was acceptable. Although the production profit of coal-based propylene slid and that of methanol-based propylene was negative most of the time, the production profit of oil-based and PDH-based propylene was stable. However, from 2020, the profit of the propylene industry fell significantly due to the continuous increment in costs, and the propylene production via most processes faced profit losses in 2022.
The profit of the propylene industry continued to pare down due to high cost and weakening supply and demand.
Since the second half of 2020, the price of propylene feedstock led by crude oil continued to rise, causing the profit to continuously shrink. From 2021 to 2022, the comprehensive cost of propylene via different processes moved up, resulting in a decrease in the profit of the propylene industry. From January to April 2022, the comprehensive cost of propylene via different processes rose to RMB 8,768/mt, while the average price of propylene in Shandong was only RMB 8,227/mt. Therefore, the comprehensive gross profit of the propylene industry was RMB -541/mt, down 176.65% Y-O-Y.
The reasons for the decrease in profit of the propylene industry were as follows. On the one hand, the mainstream price of feedstock was high, raising the production cost of propylene. On the other hand, the propylene capacity expanded, and new players entered the market, strengthening the industry competition. Moreover, the pressure on market supply and demand increased because the growth rate of propylene supply was greater than that of demand, suppressing the propylene price. In 2022, the profitability of the propylene industry further dropped, and the industry fell into profit losses. In addition, the PDH projects and refining-chemical integration projects were successively put into operation, so propylene producers had to reduce their operating rates or stopped production to cut losses.
The industry value chain constantly changed, and some downstream chemical industries had outstanding profitability.
Chart 3 2017-2022 Propylene Downstream Derivatives Gross Profit Comparison
Chart 4 2022 (Jan-Apr) Propylene Downstream Derivatives Gross Profit Comparison
As mentioned above, the production profit of propylene gradually weakened from the second half of 2020, so where was the production profit of propylene? From the changes in gross profits of propylene downstream industries in the past five years, downstream chemical products showed stronger profitability than propylene and PP. The profit of the propylene industry value chain shifted to downstream chemical industries as a whole with obvious structural characteristics. It can be seen from chart 3 that from 2021 to 2022, the gross profit from producing NBA, 2-EH and acrylic acid increased sharply compared with previous years driven by the rising feedstock prices and surging demand. Although the gross profit of PO and acrylonitrile industries decreased in 2022, the increment in gross profits in 2021 was also impressive. Therefore, the downstream chemical industries attracted more attention and more new entrants.
However, the profit margins of most downstream chemical products showed a downward trend in 2022. hereinto, the profitability of propylene downstream products was relatively strong in February, but that generally declined since March. In 2022, the profits of NBA, 2-EH and acrylic acid industries performed well, but those of PO, acrylonitrile and acetone slid to near the cost line or became negative in some period. In addition, compared with downstream chemical products, the profit of the main downstream product PP slipped due to the intensified industry competition. From January to April 2022, the average gross profit from PP powder production was RMB -159/mt, and the industry loss became the norm.
Industry value chain changes, and market opportunities and challenges coexist.
Although the increase in profits of downstream chemical industries in the past two years gave certain support to the propylene market, the price of propylene feedstock remained high and the demand was weak. Therefore, the profitability of the propylene industry chain continuously fell. In 2022, the profit loss of propylene and some downstream products intensified, making market participants increasingly worried about the future development of the propylene industry. In the future, the volume of propylene supply and demand will continue to expand, and new players will continue to enter the market, so the market competition will become more intense. Under the industry background of diversification, integration and large-scale development, the market competition will gradually develop from a single product to the industrial chain and even the industry. How to adjust the industrial structure, optimize the value chain and enhance the competitiveness of companies will become the focus of the market and the core competitiveness of industry development.
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