Chinese petrochemical demand for LPG set to rise

China's LPG demand is expected to rise in August, boosted by demand from the petrochemical sector taking advantage of LPG discounts to naphtha, as well as a spate of new projects starting operations.

LPG demand from China's petrochemical sector is forecast to increase by 9pc in August from around 725,000 t in July.

The propane Argus Far East Index (AFEI) was yesterday assessed at a $47.50/t discount to naphtha prices on a delivered Japan basis, while AFEI butane was at a $62.50/t discount — reversing premiums to naphtha in April and May. The propane and butane discounts to naphtha were as wide as $102/t and $117/t respectively on 6 July.

The increased petrochemical sector demand is partially related to 20,000-25,000t of additional consumption by Fujian Refining & Petrochemical whose ethylene cracker has been replacing part of its naphtha feedstock with butane since early July.

CNOOC and Shell Petrochemicals, a joint venture between state-controlled CNOOC, Shell and Guangdong Guangye Investment has also displaced some of the naphtha for its ethylene cracker with propane and butane. CSPC's 1mn t/yr and 1.2mn t/yr ethylene crackers can run both naphtha and LPG. The 1mn t/yr plant will displace 10pc of its total feedstock requirements, which translates to 19,000-20,000 t/month of LPG consumption.

State-controlled Sinopec's Zhanjiang refinery received its first pressurised cargo of 1,000-1,200t of LPG from the Sinopec Beihai refinery for test runs at its 800,000 t/yr ethylene cracker. Zhanjiang could be seeking an additional 4,000 t/month of LPG for the cracker.

Zhejiang Petrochemical (ZPC) started up its 600,000 t/yr propane dehydrogenation (PDH) unit in early July and has sought pressurised cargoes from importers. ZPC will buy 20,000-25,000 t/month of LPG from the market, market participants said.

The expected start-up of a PDH unit by Zhejiang Huahong and an ethylene cracker by private-sector refiner Bora Chemical will further add to LPG demand. Zhejiang Huahong's PDH plant, which completed successful test runs yesterday, will consume 45,000 t/month of propane. Bora Chemical received its first VLGC on 17 July, with it consuming 92,000 t/month of propane and butane once its 1.1mn t/yr ethylene cracker is operational.

Further LPG demand is also expected to emerge when Sinochem's Quanzhou naphtha cracker, with the flexibility to run on LPG, and Fujian Meide's 660,000 t/yr ethylene cracker start up. Both projects are expected to begin operations in August but neither has started trial runs. Fujian Meide had its commissioning postponed to the third quarter from June, although technical and financial hurdles could delay this further.