Operating Rates in Propylene Industry Curbed by Transportation

SCI99

2020-02-10

Operating Rates in Propylene Industry Curbed by Transportation

Lead: Affected by many factors, propylene market prices did not rise as expected after the Spring Festival holiday. Mainstream prices of propylene in some regions fell back to different degrees. The transportation was blocked, and the supply and demand in the propylene market shrank simultaneously. The moderating effect of price on the market weakened, and the decrease in operating rates and shutdown became the general trend. However, local governments and enterprises have introduced countermeasures in response to the actual situation, and the pressure on market fundamentals may be gradually relieved in the later stage.　　

Market price: The mainstream prices of propylene in different regions decreased in different degrees.

Before the Spring Festival holiday, mainstream prices of propylene in Shandong decreased from RMB 7,200/mt to RMB 6,815/mt, down 5.35%. It was predicted that propylene market prices would rise after the holiday, but propylene prices continued to drop, affected by many factors. Propylene prices in Shandong continued to decrease to RMB 6,600/mt, down 3.15% compared with those before the holiday. Also, propylene prices in Northeast China, East China, South China, North China dropped. Therein, the decline in propylene prices in Northeast China was much larger than that in other regions.

Market supply: propylene units ran at decreased operating rates and even were shut down, and the propylene supply gradually shrank.

Shandong is a province with the most active propylene transaction, but the operating rates at propylene producers in Shandong dropped obviously. According to SCI’s incomplete statistics, the overall operating rate at Shandong independent refineries has declined to below 50%. Some propylene producers reduced the operating rates to 20%-30%, and some propylene producers shut down the units. At present, the operating rate at Shandong independent refineries is still falling, affected by the heavy inventory pressure. Thus, the propylene supply will continue to drop.

In terms of other regions, in East China, the operating rates of some PDH units have declined, and some propylene producers also plan to cut the operating rates. However, at present, the overall operating rate is relatively stable.

Market demand: the downstream operating rate decreased simultaneously, and the demand for propylene shrank.

The Downstream operating rate also declined, and the demand for propylene gradually fell. The operating rates of PP powder, PO, NBA and 2-EH units decreased after the holiday, and the demand for propylene dropped rapidly, weighing on the propylene market. The operating rate will continue to fall, and the demand for propylene will also continuously drop.

Market transaction: the transportation in the upstream and downstream markets was blocked, causing the moderating effect of the price on the market to weaken.

According to SCI, at present, the transportation of propylene and downstream products is blocked. Inter-provincial transportation is stagnant, and inter-city transportation in some regions is also greatly impacted. Many drivers returned to their hometowns before the holiday, and the post-holiday rework was hindered, which increased the pressure on transportation.

As transportation is blocked, the propylene at producers is hardly consumed effectively, leading to a continuous increase in inventory pressure. This directly makes the moderating effect of the price on the market weaken. Even if propylene prices drop, propylene is still difficult to be transported. As mentioned earlier, the reason why propylene prices in Northeast China fell noticeably was the disruption in the transportation of propylene from Northeast China to North China and Shandong Province, which led to the increasing consumption pressure of propylene. When propylene prices decreased, the propylene resources were still hardly consumed.

Downstream transportation was also greatly affected. The main reason for the decline in the operating rate of oxo-alcohols units was that oxo-alcohols producers were mainly concentrated in Shandong Province, while the downstream producers of oxo-alcohols were mainly concentrated in East China. The transportation blockage prevented oxo-alcohols from being transported from Shandong to East China, resulting in the increased inventory pressure on oxo-alcohols producers. As a result, oxo-alcohols producers reduced the output.

On February 4, Shandong Provincial Department of Transportation issued the Notice on Relevant Matters Concerning the Safeguarding of Important Materials Transportation during the 2019-nCoV Prevention and Control Period. The carrier and vehicle driver that transport important industrial and agricultural production materials such as coal, oil and gas, chemicals, machinery and equipment, agricultural materials, etc. in Shandong Province can print and fill out the “traffic permit (Important material transportation)”, and then carry it with the vehicle as the basis for traffic. This may have a certain mitigating effect on the transportation within Shandong Province.

Market forecast: the fundamentals will remain soft in the short term, and the policies may promote the situation to be better.

In terms of the price, due to the weakening moderating effect of the price, it is predicted that propylene market prices will not change significantly in the short term, and some propylene producers in some regions may cut the price. In terms of supply and demand, the supply and demand in the propylene market will continue to drop simultaneously, and the adjustment of the operating rate will become the main response measure of upstream and downstream producers. In terms of transportation, some regions will introduce policies to guarantee transportation, but the implementation is not clear. In the short term, transportation will continuously be restricted, but the restriction may be eased somewhat. On the whole, in the short term, the propylene market and fundamentals will remain soft, but players do not have to be too panic. Players can make flexible adjustments according to their actual conditions under the unified requirements to minimize the impact.

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