Olefin Feed Circulation Pattern Evolvement amid Profit Change
Given the insufficient feedstock supply, profits of alkylation units remained low for a long time. In 2022, profits from alkylate production became high temporarily in February but became negative in September due to the notable increment in feedstock cost. The C4R2 supply remains tight, so it is predicted that the future cross-regional circulation will continue to rise.
With the LPG industry development, the proportion of chemical-use LPG rose year by year. Currently, the overall olefin deep-processing industry chain is comprehensive, and the theoretical demand is higher than demand. Moreover, both supply and demand increase, and the expansion of downstream unit capacity slows down. Accordingly, the overall olefin deep-processing industry is in the mature stage.
China’s olefin C4 utilization rate was relatively high, and some C4R2 resources were sold to the market. Accordingly, the supply and demand fundamentals were severely imbalanced. Therein, the C4R2 suppliers were mainly located in Shandong, North China, Northeast China, East China and South China, and some state-owned refineries and private enterprises signed long-term contracts or adopted fixed cooperation mode to maintain stable C4R2 supply. Accordingly, the overall C4R2 commercial volume was imbalanced, and it was tough for independent deep-processing enterprises to purchase feedstock.
China’s olefin deep-processing capacity further expanded, and the growth rate of feedstock supply was lower than that of demand. In fact, downstream enterprises adjusted unit operating rates based on feedstock supply and unit profits.
Alkylation unit witnessed high profits in Q1, 2022, but the overall profit underperformed due to high costs.
From 2012 to 2022, China’s alkylate capacity expanded rapidly and became surplus gradually. Moreover, profits from alkylate production shrank, and the capacity concentration ratio further improved. According to SCI’s data, the overall profit from alkylate production underperformed in recent years, weighing on the alkylate industry development.
2017-2021 Shandong Alkylation Unit Profit
According to SCI’s data, alkylation unit profits were sluggish in recent five years. In Shandong, alkylation units experienced profit losses in 2017, 2019 and 2020. In 2021, with some alkylation units weeding out, the overall alkylate supply declined somewhat, propping up profits from alkylate production.
Entering 2022, profits from alkylate production were favorable in Q1. Therein, the highest profit even surpassed RMB 700/mt in mid-February, and the monthly average unit profit reached RMB 517/mt. In Q2, 2022, with alkylation unit operating rates rising and the increment in C4R2 cost, profits from alkylate production narrowed notably and even became negative. From H2 August to early September, alkylation units experienced severer profit losses.
C4R2 supply was tight, weighing down operating rates of deep-processing units.
In China, most independent refineries were located in Shandong, so the demand for C4R2 in Shandong was relatively strong. As seen from the chart above, the overall C4R2 supply was short in 2022.
In H1, 2022, C4R2 prices fluctuated notably in response to the supply-demand mismatch. Therein, units at refineries were shut down for maintenance intensively in April, dragging down C4R2 supply. Moreover, China’s domestic trading and import arrivals waned notably Y-O-Y. Therefore, the overall C4R2 supply in Shandong declined Y-O-Y in H1, 2022.
In August, some large-scale refineries remained shut down, and the overall unit operating rate declined somewhat. Moreover, some refineries needed to purchase C4R2 from the market due to the upstream unit shutdown, but the overall C4R2 commercial volume went down. Therefore, C4R2 prices kept rising, and it was tougher for downstream enterprises to purchase feedstock. Alkylation unit profit losses became severer, weighing down operating rates of alkylation units.
Future C4R2 supply is likely to further shrink.
Independent and state-owned refineries started building their own alkylation units from 2017, so refineries arranged more C4R2 resources for captive-use, and the overall C4R2 commercial volume continued dipping.
According to SCI’s data, there were six newly added alkylation units in 2021, and the newly added alkylate capacity reached 1,620kt/a. Therein, five alkylation units were matched ones at refineries, and one alkylation unit was independent deep-processing unit. In H1, 2022, one newly added alkylation unit was put into operation. If units come on stream as scheduled, four newly added alkylation units will probably be put into use in H2, 2022, including matched units at Shenghong Petrochemical, PetroChina Guangdong Petrochemical and Jinao (Hubei) S&T Chemical Industry and one deep-processing unit at Guangzhou Lianyou Energy. Accordingly, it is estimated that the future C4R2 supply will become tighter.
Given the supply-demand imbalance, C4R2 prices are likely to rally. Moreover, the increment in feedstock cost and transportation cost also put a damper on C4 deep-processing enterprises, and it is estimated that the regional resource circulation will probably become more active.
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