China petrochemical makers to cut output; consumption to weaken

Most petrochemical makers in China are expected to cut production amid a build-up up of inventory and expectations of weaker consumption in the months ahead.

While financial and commodities markets in the country re-opened on 2 February after a prolonged Lunar New Year holiday, most downstream factories are still closed on government orders until 10 February.

“Most of the integrated complex, such as the producers from Sinopec and PetroChina are running normally. But due to the transportation issues, some of non-integrated factories might cut back [on production] due to the shortage of feedstock, for instance, the methanol-to-olefin producers,” said Amber Liu, head of ICIS petchem analytics in Asia.

Small and medium-sized local plastic processors could delay restarting their plants, she said.

Different degrees of restrictions apply to inter-province and provincial highway transportation systems. Trucks on the road are scarce although railway transport is largely stable, industry sources said.

A number of soda ash producers in China have declared force majeure on supplies as plant operations will not be able to resume until next week.

Some market participants were hoping that transportation and other logistics issues within the country could be resolved by mid-February.

China’s major polyolefin producers, which are currently saddled with high inventory as their plants have not stopped production during the Lunar New Year holiday, have decided to cut production in February.

The combined polyolefin inventory of PetroChina and Sinopec on 3 February stood at 1.15m tonnes, nearly double their pre-holiday stocks of 620,000 tonnes.

Some of Sinopec’s polyolefin plants, including those in Zhenhai, Yangzi and Qingdao, have reduced average operating rates to about 80% at the start of the month from full rates previously, and may maintain the current rate of production until 10 February, a company source said.

“I believe the PE demand is likely [remain] sluggish in February,” said ICIS analyst Liu, noting that end-users in the packaging sector will prefer to use up their inventory of finished products instead of beefing up production.

Supply of PP fiber grade and transparent polypropylene (TPP) grade will increase, to meet the increasing demand for medical protective equipment, such as masks, injection syringe, but added that other PP grades will fall.

The proportion of PP’s usage for medical accessories, however, is too small compared with overall consumption to have a significant impact on the market.

A tonne of PP fiber is able to produce about 250,000 protective masks, while a tonne of transparent PP could produce about 500,000 medical disposable syringes.

“However, because of the ample supply due to high inventory after [the] holidays and new capacities, other PP grades will still be long in Q1 2020,” Zhou said.