Overall annualized operation rate across China's coal-based polyethylene plants is likely to remain relatively low this year, at 63-70% capacity, as plant operators grapple with competition against the more cost-effective naphtha-based plants amid overall weak demand, S&P Global Platts calculations and industry sources said this week.
The low operation rate projected for this year also comes from a higher base capacity, as 2.47 mln mt/year of new coal-based PE capacity will come on stream by the end of this year, compared with an installed capacity of 1.8 mln mt/year at the end of 2015.
But given greenfield plants typically take several months to undergo commissioning and stabilization, the annual average operating rate across these new plants is likely to be at 50-60% of nameplate capacity this year, according to Platts estimates.
And with runs at existing coal-based PE plants projected to average 80%-85% capacity this year, overall annualized average run rate based on 4.27 mln mt/year capacity at the end of this year will be 63-70%, down from 80-85% last year.
Still, the sheer amount of new coal-based PE capacity coming on stream will reduce China's PE imports to slightly over 8 ml mt in 2016, from just below 10 mln mt last year, according to Platts calculations. This is based on an estimate of 80-90% operation rate across all PE plants, including naphtha-based units. Runs at existing coal-based PE plants are generally lower than the projected run rate of 80-90% for both naphtha-based and coal-based PE plants this year, as low naphtha prices have reduced production costs at naphtha-based plants by 57% since oil prices started falling in June 2014, making them more cost competitive compared with coal-based units.
To date in May, it is about $35/mt cheaper to produce a metric ton of PE from naphtha-derived ethylene than it is to produce from ethylene output from coal-to-olefins plants, according to Platts Petrochemical Analytics. Further downside would also come from a weak outlook for PE next year, with the market likely to continue being under pressure from an overhang of supply globally, sources said. From the Middle East, additional output is also expected -- Saudi Arabian Sadara Chemical's 350,000 mt/year low density polyethylene plant and two linear low density polyethylene lines totaling 750,000 mt/year will fully start up by end-2016; while Kuwaiti Equate's debottlenecking of its plant will add 175,000 mt/year of PE capacity.
Coal-based PE capacity accounts for around 14% out of Asia's total PE capacity, versus naphtha-based PE at around 60%. PE is also manufactured from ethylene using LPG and gasoil as feedstock at steam crackers.