Coronavirus outbreak casts a pall over China's PDH plants

Petrotahlil - Such fears have taken a toll on Asia's LPG market, with CFR North Asia prices sliding to near five-month lows early this week before recovering on Wednesday, while Saudi front month March Contract Price propane swap fell to near six-month lows before edging higher, on worries of lower imports of Middle Eastern LPG, China's main supply source.

Chinese LPG wholesale buyers source their feedstock propane LPG cargoes mainly via trucks from nearby terminals.

However, the Chinese provincial government's transport controls to limit the spread of the deadly virus, is making it difficult for some of these buyers to get their cargoes, market sources said.

They added that domestic LPG demand is estimated to have been reduced to as low as 50%-70% due to the outbreak. People are advised to remain at home and avoid unnecessary travel, while many factories are required to not restart before February 9, following the Lunar New Year holidays, except for those manufacturing essential products.

Another logistical concern sources cited were delays caused by the quarantine of Very Large Gas Carriers.

Any crew member suspected of being infected, would cause the ship to be placed under a 14-day mandatory quarantine period, resulting in delays and congestion.

But Chinese sources said many PDH plants have their own terminals to receive VLGCs and most of them have their own downstream petrochemical plants to consume their polypropylene product.

However, operations at PDH plants, which require their feedstock transported by trucks from nearby terminals, would be affected by the government's transport controls. The sale of petrochemical products are also expected to be affected by the transport curbs, which could in turn constrain PDH plants' operating rate, according to market sources.

ZHEJIANG SATELLITE RUNS AT 70%-80% CAPACITY, TIANJIN BOHAI EXTENDS SHUTDOWN

Zhejiang Satellite Petrochemical is running its PDH plant at 70%-80% capacity, sources close to the company told S&P Global Platts, adding it has no plans to increase its run rate unless logistical issues improve.

Zhejiang Satellite, located in eastern China, uses around 720,000 mt/year of propane as feedstock when operating at the full capacity of 450,000 mt/year to produce propylene.

Tianjin Bohai Chemical will likely postpone the restart of its PDH plant by another 19 days to February 29 due to sluggish demand, a company source said. This came after the facility, located in northeastern China, had delayed the restart of its 600,000 mt/year propylene plant to February 10, from February 6, extending the Lunar New Year holidays in the wake of the coronavirus outbreak. Tianjin Bohai uses 720,000 mt/year of propane when at full capacity.

"We have to postpone the restart further back to February 29, due to poor demand for propylene," the company source said.

Except for Tianjin Bohai, other PDH plants were said to have resumed operations, though Shaoxing Sanyuan may shut again due to limited propane feedstock, market sources said.

The company typically transports its propane feedstock via trucks from Oriental Energy's Ningbo terminal, but as traffic is being controlled in many regions, it is difficult for them to get their propane feedstock, the sources said.

Oriental Energy said they have been operating at full capacity as their PP production is the main material used in the production of medical masks and protective clothing.

Chinese PDH plants' average operating rate was estimated at around 76% over February 1-5, up from an average of 68% in January, according to a survey by domestic information provider JLC.

However, one source familiar with the matter said China's PDH operating rates could fall to 50% in the coming weeks.

PROPYLENE DEMAND DOWN

Buying interest for propylene, on the other hand, has declined as Chinese buyers reduced purchases in light of slowing demand following the spread of the coronavirus.

The CFR China propylene marker stood at $840/mt Wednesday, down $60/mt on the week, while domestic Shandong propylene fell Yuan 250/mt on the week at Yuan 6,500/mt ex-tank, Platts data showed

The price spread between PP raffia and propylene -- the gauge for downstream PP margins -- stood at $80/mt on Wednesday, lower than the typical breakeven spread of $150/mt.

Besides term customers, Tianjin Bohai Chemical supplies propylene to its downstream operator, which owns two 250,000 mt/year swing plants that can produce normal butyl alcohol or 2-ethyl hexanol.

These downstream plants remained open, while the PDH plant was shut for maintenance.

Platts had assessed CFR North Asia propane for delivery in H1 March at $348.50/mt, the lowest since September 13, 2019 when it stood at $340/mt, before rebounding on Wednesday to $369/mt, Platts data show.

Front month March Saudi CP propane swap fell to 329/mt Tuesday, the lowest since mid-August 2019, before recovering to $362/mt on Wednesday, Platts data showed.

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Source : Platts

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