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Asian propylene eyes support in H1 2020 from new polypropylene plants, turnarounds

Singapore — Propylene markets in Southeast Asia, Taiwan and Japan are expected to be supported in the first half of 2020 by the startup of downstream polypropylene plants and a heavier-than-usual turnaround schedule.

Commodities 2020 | S&P Global Platts

In Japan, five steam crackers with a total propylene capacity of over 1.2 million mt/year have turnarounds planned in H1, heavier than in the same period of 2019, S&P Global Platts records show.

South Korea's Hyosung Chemical plans to start its 300,000 mt/year PP plant in Vietnam over December-January and its propane hydrogenation or PDH plant only by Q4 2020, likely resulting in it seeking feedstock propylene in the spot market in H1.

Thai IRPC's steam cracker, which can produce 310,000/mt year of propylene, is scheduled to undergo turnaround in January-February. In Taiwan, CPC plans to shut its No. 6 steam cracker with 430,000 mt/year of propylene capacity at Lingyuan in February for turnaround, and Taiwanese contract buyers expect spot supply there will tighten in H1 as a result.

However, the startup of Pengerang Refining and Petrochemical's new cracker in Malaysia was expected to have a minimal impact on spot propylene prices as its output will be largely consumed captively for PP production.

In China, the propylene market may face downward pressure in H1 due to rising supply and weakness downstream.

China's Fujian Meide Petrochemical's 660,000 mt/year and Zhejiang Huahong New Material's 450,000 mt/year PDH plants are both due to start up in Q1, reducing China's reliance on imports.

"We will not have turnarounds for our two PDH plants in H1 and I have not heard other PDH plants in China planning turnarounds," said a source at a PDH plant in east China, adding the lighter-than-usual turnaround season may increase domestic supply.

The new PP capacity may absorb some of this, but an oversupplied PP market would eventually weigh on both PP and propylene prices in China, the source added.

EUROPEAN DEMAND WEAK

European demand is expected to remain weak in H1 2020, with geopolitical issues such as Brexit and slowing economies impacting demand from key derivatives. However, changes to feedstock dynamics due to IMO 2020 could tighten global supply and lend support to prices as the year progresses.

IMO 2020 could potentially tighten gasoline supply, which may in turn impact naphtha prices.

Europe will be susceptible to IMO 2020's impact given it relies more on naphtha as feedstock for cracking than the US and the Middle East, despite recent investments to increase flexibility in its feedstock usage.

Increased US polyethylene imports into Europe may also drag down European PE production and subsequently, cracker run rates.

Europe's propylene capacity is also expected to inch down to 1.89 million mt/year by next June from 1.91 million mt/year in December 2019, according Platts Analytics.

Europe's net propylene imports rose 196,000 mt on year over January-August to 439,000 mt, Eurostat data showed. The US supplied 185,000 mt, up from 164,000 mt a year earlier.

However traders were seeing fewer offers from the US in late 2019 and did not to see any structured contracts in place for 2020 after the price spread between US and Europe narrowed, making it less attractive for US exporters to sell to Europe.

The spread between delivered US Gulf and NWE propylene averaged $116/mt in October, down sharply from $343/mt in June, Platts data showed.

US INVENTORIES HIGH

Increased reliability at US PDH plants in recent years has resulted in sharp increases in propylene stocks in 2019, pressuring down prices, and some market participants expect high inventories to persist into 2020.

One source expected this to continue until additional downstream facilities came online, while another noted PP was long globally. However, a third source said propylene supply in Q1 could potentially tighten in view of unconfirmed talk of PDH plant turnarounds.

US non-fuel propylene stocks were up 56% on year at end October, latest data showed.

While outages at PDH plants lowered inventory levels in H2 2019 from the year-to-date high reached in February, stocks remained solidly above 2018 levels, keeping propylene prices lower for most of 2019 than the year before.

In addition, most US propylene production facilities are landlocked, crimping exports. The US has one propylene export terminal operated by Enterprise at its LNG export terminal on the Houston Ship Channel, which can load up to 5,000 mt/day of propylene, and is under expansion.

Enterprise is also moving ahead on a second 750,000 mt/year PDH plant at its Mont Belvieu natural gas liquids hub, with LyondellBasell as its anchor customer. LyondellBasell considered building its own PDH plant, but CEO Bob Patel told investors in September it was focused on derivatives rather than olefin production.

PetroLogistics, which built the first US PDH plant, a 658,0000 mt/year facility later acquired by Flint Hills Resources, announced plans in July to build a 500,000 mt/year PDH plant on the US Gulf Coast.

Commodities 2020 | S&P Global Platts

-- Melvin Yeo, melvin.yeo@spglobal.com

-- Edited by Wendy Wells, wendy.wells@spglobal.com