China domestic propylene prices rebound on new buying

China's domestic propylene market has started to strengthen on the back of renewed buying following improved transportation logistics and signs of a slowdown in the spread of the coronavirus.

Trade prices in Shandong province, the major propylene consumption hub, rallied to 6,400-6,500 yuan/t ex-tank Shandong today, up by Yn800/t or 12pc from a week earlier. The price is equivalent to $781-794/t on an import parity basis.

Buyers came back into the market as they judged propylene prices have bottomed out and will trend higher when demand slowly returns.

A strong rebound in downstream polypropylene (PP) futures on the Dalian Commodity Exchange over the past five days has further supported market sentiment. PP futures provide key guidance for domestic propylene prices.

The supply balance in Shandong has tightened as buying kicks in. Heavy production cuts at propylene plants have been maintained this week.

Shandong-based fluid catalytic cracker (FCC) units are operating at an estimated 30-40pc, down from more typical levels of around 60pc.

Shandong Luxi Chemical has extended the shutdown at its 300,000 t/yr coal-to-olefin plant by a month to mid-March. Tianjin Bohua has also prolonged maintenance at its 600,000 t/yr propane dehydrogenation (PDH) plant to March. The work was initially planned to end in early February. Hebei Haiwei's 500,000 t/yr PDH plant, Shandong Shenda's 460,000 t/yr methanol-to-olefin (MTO) unit and Shandong Yangmei Hengtong's 300,000 t/yr MTO unit have kept rates low, at 70-80pc.

But some market participants warned the bullish sentiment may be overdone. Actual demand has not noticeably increased and the rapid rise in propylene prices will eliminate derivative margins, they said.

Derivative industries have mostly maintained production cuts this week.

Chinese PP producers are still prioritising destocking. More production cuts and plant shutdowns were implemented this week. Ningbo Formosa shut its 500,000 t/yr PP units from 15 February. Fujian Zhongjing's 340,000 t/yr PP unit and CNOOC-Shell's 400,000 t/yr unit were both taken off line on 14 February.

Acrylonitrile plants in China have kept operating rates at an average 82pc this week, compared with 93pc before the lunar new year holidays.

Phenol producers in China have maintained rates at 66pc this week against 81pc in late January.

Estimated run rates at Chinese propylene oxide (PO) plants are at 63pc, compared with 76pc in late January. PO producers are now planning to increase operations next week.

Downstream factories still face difficulties resuming operations. Coronavirus quarantines, insufficient supplies of surgical masks, a shortage of migrant workers, and the need for government approvals before plants can restart continued to hamper the market revival.

By Becky Zhang