Downtrend in Asian propylene price unlikely to end before 2015

Asian propylene prices are not expected to recover by end of 2014 from a downtrend that started in August, as per market participants in Platts. Several factors are impacting this downtrend- Shutdown of a major downstream plant, startup of several new propane dehydrogenation plants, the looming end of turnaround season and a weak outlook for the polypropylene market- All these are likely to result in a significant surplus of supply in the region in Q4. Prices have fallen sharply since August 1 following a pipeline explosion in the Taiwanese city of Kaohsiung the day before, tumbling by US$90/mt from July 31 to be assessed at US$1385/mt CFR China Friday and by US$85/mt to US$1335/mt FOB Korea over the same period. The gas blast damaged an underground pipeline running from Lee Chang Yung Chemical Industry Corp.'s propylene import tank at Huayun Terminal to its 400,000 m tpa PP plant, which remains shut indefinitely. LCY's domestic feedstock supplier, CPC, has turned to the spot market to find export opportunities for its surplus propylene since the PP plant closed. "The market changed after the LCY shutdown," a trader said Friday. "China is full of Taiwanese cargoes." Market participants said CPC was likely to continue offering propylene for export for as long as the LCY PP plant remained closed, and this would likely continue to weigh on propylene prices. "Ethylene margins are good and so producers do not intend to cut their operating rates," a producer said. A propylene end-user in Taiwan said the government was in the process of checking all underground pipelines in central Kaohsiung. "I don't think they will finish it [the checks] by end of this month," he added. An election in Taiwan in late November could also be a factor delaying the restart of LCY's plant given the political sensitivities, a producer said. The startup of three new propane dehydrogenation (PDH) plants in China in Q4 will add further propylene supply to the spot market, participants said. Several feared the market was facing a severe oversupply that would fuel a sharp retreat from already low current price levels. A total of 1.5 mln mt/year propylene production capacity is slated to come on stream by year end once Zhejiang Satellite Energy, Ningbo Haiyue New Materials and Shaoxing Sanyuan Petrochemical commence commercial production at new PDH plants in Q4. It is believed that all three companies have started feeding propane into their plants, but not yet achieved on spec propylene production. In addition to new PDH plants, Platts Petrochemical Analytics' Global Polyofelin Outlook 2014-2015 released in June noted there were plans in China to start up at least four new coal-to-olefins plants in 2014, boosting the country's total propylene capacity by another 1.8 million mt/year. Market participants also noted the current propylene plant maintenance season will end in Q4. The high turnaround season in Northeast Asia will end around October/November with YNCC, Formosa, Idemitsu [and other producers coming back on stream.