PDH expansion fuels China’s LPG demand
China’s LPG demand has started recovering with PDH operating rates improving after the shutdowns due to the outbreak of the coronavirus (COVID-19) in January. The pandemic has not impacted PDH expansion plans in the country as three PDH facilities are set to open in 2Q20.
The outbreak of the virus in China around the Lunar New Year holidays had forced PDH operators to extend the shutdown period while some operated the plants at low rates. The fall in PDH demand for LPG was reflected clearly in China’s LPG import figures with the petrochemical sector accounting for 52% of LPG demand.
PDH operating rates in January were around 84% before the pandemic, which slid to below 50% over February with shutdowns, transportation restrictions, weak downstream demand, and workforce issues affecting production. As the spread of the virus slowed down in China in March, PDH operations started improving, albeit at around 60-70% of the operating rates. Furthermore, they s increased further in April to over 80% as activities became normal. We expect operating rates to remain high in 2020 as propylene demand is strengthening.
China’s PDH sector is also expanding despite the pandemic with five PDH units set to commence operations in 2020. Construction on the Zhejiang Petrochemical 1 (600,000 tpa) PDH unit has been completed and will begin operations in June 2020. Other PDH units – Fujian Meide (700,000 tpa), Ningbo Fuji (Donghua) II (660,000 tpa), Wanda Petrochemical’s Qi Xiangtengda PDH unit (700,000 tpa), Huatai Shengfu (200,000 tpa), and Yantai Wanhua (500,000 tpa) are scheduled to start operations in 2020. However, we expect some delays in the commencement of these units amid the virus outbreak and operations could begin in 2021.
At end 2019, China’s propylene production capacity increased to 6.9 mtpa with four PDH units aggregating 1.7 mtpa commencing operations in 2019. Zhejiang Satellite Petrochemical started its phase two (500,000 tpa) PDH unit in January 2019, Hengli Petrochemical started its PDH unit (600,000 tpa) in June 2019, while Dongguan JuzhengyuanTechnology PDH plant (600,000 tpa) commenced operations in September.
We expect the total PDH production capacity in China to rise to 13 mtpa by 2023, with nine PDH projects currently under construction. Furthermore, 19 PDH projects with a propylene production capacity of 2.9 mtpa are being planned, which may further boost China’s PDH capacity post-2023.
China’s PDH expansion will create an additional propane demand of around 8 mtpa by 2023 at full capacity. The increase in demand comes at an opportune time for the LPG shipping as it is already grappling with weak demand in different regions of the world. Furthermore, we expect LPG trade to recover on the US-China route after the latter exempted the 25% tariff that was earlier imposed on US LPG imports. Even 10% of China’s LPG imports coming from the US by 2023 will create demand for 10-14 VLGCs, improving the overall tonne-mile demand.