China ethylene crackers to further squeeze PDH margins

The propylene yields from ethylene crackers will add to an already well-stocked Chinese market, putting pressure on the country's PDH producers

The start-up of new ethylene steam crackers in China over the next year is expected to add further pressure on propane dehydrogenation (PDH) plant operators, which are already faced with growing domestic propylene supplies as yet more PDH units open in the country.

Beijing's target of reaching 50mn t/yr of ethylene production in 2024 could yield around 5mn t/yr of propylene as a by-product, squeezing market share for the country's expanding fleet of PDH plants — eight new PDH units are due on line this year and seven in 2024.

China's industry and IT ministry on 25 August announced plans to ensure growth in 2023-24 in four industries — petrochemicals, construction materials, non-ferrous metal and steel. This includes the 50mn t/yr goal and ensures five major petrochemical projects will launch before the end of next year.

PDH operators are already facing increasing pressure from building domestic supplies as more plants open and owing to weak downstream demand. The added yields that will emerge from crackers will further raise the likelihood of the market becoming oversupplied in the coming years unless consumption can keep pace.

State-controlled refiners and petrochemical producers might maintain high operating rates to meet Beijing's target, an east Chinese refiner says. Ethylene output will rise by 9pc on the year to about 40mn t this year, Argus estimates. Ethylene capacity will rise by 11pc to 50mn t/yr, from refineries, crackers, coal-to-olefins and methanol-to-olefins facilities. Two notable cracker projects due to start next year include Sinopec and London-based Ineos' 1.2mn t/yr cracker in Tianjin and Chinese firm Yulong Refining's 1.5mn t/yr No 1 cracker in Yantai.

Most crackers produce propylene as a by-product, but the quantity depends on the feedstock. Naphtha yields around 43pc propylene relative to ethylene, propane around 33pc, butane 49pc and ethane only 2.5pc. This, and ethane's higher ratio of ethylene production overall, could make it an increasingly favourable feedstock, although investment in ethane-fed crackers depends on the capability of exporting it from the US on very large ethane carriers (VLEC) — slowing any possible capacity additions.

Chinese PDH operating rates dropped to 76pc by 30 August from 87pc on 2 August. During the same period, ethylene cracker operating rates increased to around 88pc from 82pc, Argus data show. LPG imports decreased by 8.3pc on the month to 2.88mn t in August, according to oil analytics firm Vortexa, which was largely owing to higher propane prices and eroded PDH margins.

This year's eight upcoming PDH projects — with a combined propylene production capacity of 5.7mn t/yr — could be postponed if margins weaken, with no signs of an imminent rebound and peak demand season for propane emerging. Five PDH units with 3mn t/yr of propylene output combined started up in January-August. An east Chinese PDH operator says a 900,000 t/yr second-phase project scheduled to launch in November may be delayed to early 2024 if margins worsens this winter.

Cracking on

Refinery integrated crackers are more competitive than PDH plants given their wider product offering and feedstock choice, and they rarely cut rates because of low propylene prices. Their complex connections to the refinery and downstream units also makes them less flexible in terms of utilisation. PDH plants are dependent on favourable propane feedstock and propylene prices.

Chinese refineries are expected to lower gasoline yields and increase petrochemical production in the medium term by expanding integrated cracking capacity, as motor fuel demand declines. A wave of projects that started development this year is expected to lead to a spike in ethylene production capacity in 2026-27.

China PDH and cracker run rates