The addition of a number of new PDH plants in China is likely to pull in more LPG imports at a time when petrochemical demand growth is slowing
China's expanding LPG-fed petrochemical production capacity has been the driving force behind increasing international LPG trade in recent years. But negative margins and wider economic pressures that have weighed on olefin demand are capping the shorter-term outlook for further LPG import gains to the country, Argus Consulting's latest quarterly LPG Analytics: Market Update finds.
It is easy to forget when discussing the difficulties faced by the Chinese petrochemical sector in 2022 — stemming largely from Beijing's zero-tolerance Covid-19 policy and higher energy prices — that it has continued to consume more feedstock. LPG imports rose to 19.2mn t in the first nine months of this year from 17.8mn t a year earlier, customs data show. This continues to be propelled by the opening of new petrochemical capacity, in particular propane dehydrogenation (PDH) plants — the fleet of which has risen to 28 this year, pushing combined capacity up to 13.1mn t/yr from 10.5mn t/yr.
An extra 4mn t/yr was due to open this quarter. And 13 more PDH plants with a combined capacity of 8.5mn t/yr are due to open in 2023, pulling in more LPG imports, but weak margins, thin downstream demand and an oversupply of propylene are tempering expectations. "PDH plant build schedules are being extended and there may be some cancellations of projects not yet under construction," the report says. "In the long term, we forecast growth in energy sectors to decline."
Chinese PDH margins moved into positive territory for the first time this year in mid-October, causing a flurry of plant restarts and even the commissioning of a new unit. About 2mn t/yr of capacity had been brought back on line by the end of September. PDH utilisation also rose to 88pc by the end of October from 66pc in mid-September, boosting demand. But PDH producers have been helped by recent turnarounds at northeast Asian crackers, which should resume operations in late November, adding propylene to an already glutted market. With margins plummeting again, it is hard to envisage any of the delayed start-ups coming on line soon.
The question is how long and to what degree can the PDH sector continue producing more propylene in an oversupplied domestic and international market. Demand for plastics is weakening almost everywhere as the global economy flounders. At the moment, seven new PDH plants of a combined 4.6mn t/yr have been delayed from late 2022 to undefined periods in 2023. Unless things start to improve in the coming months, these may be postponed again or not emerge at all.
The long and short of it
Against this is a backdrop of growing LPG supply. Mideast Gulf LPG exports have risen significantly this year, while US stocks have swelled to levels well above those a year earlier given tepid export demand and firming US output. Middle East LPG supplies have grown on relaxed Opec+ restraints and more Iranian exports. Whether this situation persists is a little uncertain owing to the Opec+ group undershooting its monthly output target and recent cuts to the quota as a result of weak global crude demand. But supply from the region has more than matched import demand to Asia so far this year, and it is likely to remain that way until 2023.
The only real supply tightness remains in Europe, where high natural gas prices have continued to bear down on LPG supplies from refineries and gas processors. Increased LPG consumption in refineries was seen in the data for the second half of 2021, which has continued this year, cutting sales at the gate. Luckily, the US has kept the region slaked, with increased availability from its east coast and less competition for cargoes from its Gulf coast. But should Asia-Pacific demand firm, and regional temperatures fall, it could leave Europe in a very tight spot this winter — a situation compounded by the cuts to Russian LPG exports to eastern Europe and long-standing import bottlenecks across the continent.
