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MOSCOW (MRC) -- A massive surge in
China’s manufacturing capacity for paraxylene, a petrochemical used to make
textile fibers and bottles, could force leading exporters in Japan and South
Korea to cut production as early as the second quarter of 2020, reported
Reuters.
China will add about 10 million tones of paraxylene
manufacturing capacity from March 2019 to March 2020, according to company
reports and officials, that is enough for making 22 trillion 500-milliliter
plastic bottles.
The world’s top consumer of paraxylene (PX), China
imports 60% of its need for the chemical to feed polyester demand that has more
than doubled since 2010. Over half of China’s PX imports come from South Korea
and Japan and the new capacity is expected to cut Chinese imports by about
50%.
Without Chinese demand, the profit margins for regional
manufacturers such as Japan’s JXTG Holdings Inc (5020.T), South Korea’s Lotte
Chemical (011170.KS) and Hyundai Cosmo Petrochemical and domestic producer
Dalian Fujia are expected to drop further, likely causing a rollback in output
and decline in earnings.
“We will see drastic cutbacks in PX operating
rates among many Asian exporters, and potential capacity rationalization in
sites where integrated refining-aromatics margins are poor,” said Darryl Xu,
principal analyst for Asia chemicals at consultancy Wood
Mackenzie.
Private companies are leading China’s latest PX boom through a
string of projects often integrated with big oil refineries which make them more
cost competitive and flexible.
China’s Hengli Group launched in March a
PX plant capable of producing 4.5 million tonne per year (tpy) in the city of
Dalian and Zhejiang Petrochemical is slated to start a 4 million tpy plant in
Zhoushan late in 2019.
In July, Shandong-based Hongrun Petrochemical
began trial runs at its 700,000 tpy plant and China Petroleum and Chemical Corp,
or Sinopec, will start a plant in Hainan producing 1 million tpy in the third
quarter.
Helen Yang, a researcher at JLC Consultancy, estimated China’s
PX imports could fall to 7 million tonnes next year and further to 4 million
tonnes in 2021. Imports this year will be 12.6 million tonnes, the first annual
decline in over a decade, down from a record 16 million tonnes in
2018.
Expectations of surging Chinese supplies squashed the chemical’s
processing margin, or PX’s price over naphtha, a refinery product used to make
PX, to below USD320 a tonne in mid-August, versus USD600-USD700 a year
ago.
"The USD600-USD700 margin was crazy and unlikely to be repeated,”
said Ma Xiumei, a purchasing executive at Hengli Group, which has cut its PX
imports by nearly half this year.
Ma Cheng, the head of feedstock
purchase at Zhejiang Yisheng Petrochemical, part of a joint venture with the
builder of the PX plant in Zhoushan, predicted that the PX margin could slide
below USD250 a tonne later this year and even lower in early 2020 after the
Zhoushan plant ramps up.
JXTG Holdings said that a deteriorating PX
market contributed to its shrinking first-quarter earnings, but the company is
still upbeat with demand growth in Asia and also plans to divert some exports to
the Americas.
“One of our headaches for the latest earnings was falling
margins of PX,” said Yoshiaki Ouchi, JXTG’s senior vice president earlier this
month after firm reported a 88% slide in quarterly profit.
Japanese bank
Nomura Holdings Inc cut its forecasts for JXTG’s earnings through the 2021
fiscal year following the slump in PX margins.
China could add another 14
million tonnes of PX capacity between 2020 and 2023 said JLC’s Yang, which will
contribute to rising gasoline supply in Asia.
South Korean and Japanese
PX makers are likely to respond to the rising Chinese supply by diverting output
to the gasoline blending pool, as aromatic chemicals like PX are used to raise
the octane rating of gasoline. This could add another 150,000 barrels per day of
gasoline in Asia by 2021, said Wood Mackenzie.
“(PX) exporters in Japan
and South Korea will soon face a dilemma - should they continue to fight for a
shrinking export market, or divert aromatics feedstocks into a much bigger
gasoline market?” said Wood Mackenzie’s Xu.
Paraxylene is a feedstock
for the production of purified terephthalic acid (PTA), which is, in its turn,
is a feedstock for producing polyethylene terephthalate (PET).
According
to MRC's ScanPlast
report, Russia's estimated consumption of PET decreased in July
2019 by 4% year on year. 428,790 tonnes of PET were processed in
Russia in January-July 2019. Russia's PET production was 44,430 tonnes in
July. |
