Asia propylene price to be supported by strong derivative demand.
We estimate that global propylene supply addition should reach 8-9mtpa during 2021-2022F, following naphtha cracker and refinery expansion in China. The startup of propane dehydrogenation projects (PDH) also looks accelerated at 2.8-4.1mtpa during 2021-2022F from 1.0mtpa during 2017-2019. Based on our estimates, 60-90% of additional propylene capacities are from China during 2021-2024F.
While most new naphtha crackers should be able to operate at high utilisation rates, the profitability and utilisation rates of China-based PDH capacity would hinge on imported LPG cost, which could be seasonally costlier in winter. As PDH capacity might not be able to ramp up to full utilisation rates throughout 2021F while coal-to-olefins (CTO) and methanol-to-olefins (MTO) cash costs are relatively high, naphtha crackers could seize some additional market share, in our view.
On the demand side, we believe strong derivative demand, particularly for polypropylene (PP), phenol and acrylonitrile (AN) should continue to support propylene prices. The acceleration of new PP, phenol and AN supply growth should translate into strong Asian propylene demand in 2021F.
PP, which is used for plastic packaging and automotive/electrical parts production, is the biggest outlet for propylene. According to the China Passenger Car Association, passenger vehicle sales increased by 69% yoy in 1Q21, indicating that vehicle demand has reverted back to the pre-Covid-19 levels in 2019. The expectations for higher PP price, which is backed by higher crude oil price, and better demand outlook should accelerate restocking demand in the near term. Chinese government’s policy to support car sales should continue to lead to robust PP demand. Together with alternative usage (e.g. substitution for PE in packaging), growing PP demand should be able to absorb additional PP supply which should reach 5-7mtpa during 2021-2022F, in our view.
Thai-based capacity expansion just in time PTT Global Chemical and SCC have undertaken ethylene capacity expansion projects in Thailand. The main purpose of PTTGC’s Map Ta Phut Retrofit project (new naphtha cracker) is to diversify feedstock to naphtha, given that ethane feedstock availability could gradually decline after 2022F. For SCC’s Map Ta Phut expansion project, the purpose is to eliminate the dependence on ethylene from external parties.
Both projects achieved on-spec production in late-Mar 21 and should start commercial production in 2Q21F. We believe the timing of the project startup is optimal given that Asian demand for ethylene and PE should remain robust in 2021F, especially with limited competition from the US. SCC still has another chemical project that is under construction in Vietnam, which is Long Son Petrochemical project (LSP). According to SCC, the startup date should be within 1H23F. Based on our estimates, global ethylene supply additions should fall to 4-5mtpa during 2024-2025F from 10-12mtpa during 2021-2023F.
We believe SCC would not inject its capital to finance Chandra Asri’s second naphtha cracker in Indonesia as SCC would need to preserve cash for LSP. PTTGC aspires to build a shale gas cracker project in the US. However, Daelim Industrial, which previously agreed to co-invest in the project, withdrew from the JV agreement in July 2020. PTTGC stated that it will continue with the feasibility study for the project and actively find a new partner. The target for the final investment decision (FID) is in 2021, delayed from end-2020 (previously estimated) and end-2018 (the original plan).
SCC’s expanded ethylene capacity SCC’s project to expand ethylene production capacity by 300ktpa at Map Ta Phut Olefin complex (MOC) was completed and achieved on-spec production in late-Mar 21. The project also raised its propylene capacity by 50ktpa. This took SCC’s nameplate ethylene and propylene production capacity to 2.1mtpa and 1.3mtpa, respectively (from 1.8mtpa and 1.25mtpa previously). SCC’s primary objective of increasing ethylene production is to cover its internal ethylene deficit of 200-300ktpa. We believe the expansion plan is good for SCC as the profitability distribution is heavily skewed to upstream ethylene while PEethylene spread was narrow at US$80-100/t during 2019-2020.
– By CIMB Bank Research
