Beijing (JLC), May 27, 2019--It has been two months since Hengli Petrochemical started chemical products supply to the market. What impact has the new supply made on the chemical market?

    Asia PX prices plunge

    Asia PX prices started to plunge after Hengli Petrochemical achieved PX self-sufficiency in mid-April with two PX units on stream. The CFR Taiwan PX price stood at $1,069/mt on April 15 and has slumped to $868/mt so far, a decrease of $201/mt or 18.8% in less than 40 days.

    The price plunge significantly squeezed PX production margins which were high before March. Producing PX with MX as the feedstock could make a margin of $300/mt on March 12, but the margin began to shrink as from late March and even dipped below the break-even point. At present, PX production losses reached about $17.5/mt.

    Hengli Petrochemical officially put a 2.25 million mt/yr PX unit into operation on March 24 and started up a new 2.25 million mt/yr PX unit in early May, making it the largest PX producer of both China and the world with a total capacity of up to 4.5 million mt/yr. The capacity accounts for 24.3% of China's total PX capacity.

    Hengli Petrochemical is currently running its PX units at 70% of the capacity, with the daily output at 8,000-9,000 mt. All the output is directly delivered to its downstream PTA plants, which has a PTA production capacity of 6.6 million mt/yr and could consume 4.356 million mt/year of PX in theory. Hengli Petrochemical will be able to produce PTA entirely depending on its self-made PX after raising run rates of its PX units.

    Before the startup of the new PX units, Hengli Petrochemical purchased a half of its feedstock PX from the domestic market and the other half from abroad. If the company would stop PX purchase someday, PX exporters like Japan, South Korea and India will face great pressure.

    Benzene market impacted little on unified sales

    The operation of Hengli Petrochemical’s new 960,000 mt/yr pure benzene unit imposed limited impact on the pure benzene market as sales of the product was unified by state-owned chemical giants, which ensured the internal consumption and made the supply to the market controllable. The unit produced over 2,000 mt per day of qualified PX.

    The margins of the benzene industry chain were good and the demand remained rigid. In addition, benzene stocks were relatively high, so the newly-added supply did not affect the market much. Meanwhile, with strong commercial features, the international market prices and enterprises’ offers dominated the domestic market, and the fundamentals are yet to have decisive effect on the market. In short and medium run, the newly-added supply would not have a clear impact on the market trend.

    Methanol sales likely to drop

    Hengli Petrochemical brought on stream its 500,000 mt/yr methanol unit in February and was now in normal operation, which supplemented the local methanol supply. The company’s 820,000 mt/yr MTBE unit was put into operation in May, which currently rat at low rates. It put a 350,000 mt/yr acetic acid unit into operation around May 23. With the latter two units in normal operation, Hengli Petrochemical may reduce its methanol supply to the market.

    Other chemicals from Hengli Petrochemical

    Hengli Petrochemical is yet to start up an 800,000 mt/yr ethylene glycol unit and a 5 million mt/yr PTA unit, as well as styrene unit, acetic unit and ethylene unit (as shown in the following table). It is expected to bring on stream the ethylene glycol unit and a 2.5 million mt/yr PTA unit in the fourth quarter of 2019 or the first quarter of 2020, when Hengli Petrochemical will achieve a whole industrial chain development mode of “crude-PX-PTA-polyester”.

Source: JLC

    Since 2018, traders’ dominant concern has been the operation of Hengli Petrochemical’s 350,000 mt/yr acetic acid unit, which is expected to come online at the end of May 2019.

     Located in Northeast China, Hengli Petrochemical has access to both truck and ship transportation, with the former used in Northeast China and North Hebei and the later in Shandong and Jiangsu.

    At present, Hengli Petrochemical has a 6.6 million mt/yr PTA unit, which consumes 250,000 mt of acetic acid per year theoretically. However, the monthly acetic acid demand is about 16,000-20,000 mt, equivalent to up to nearly 200,000-240,000 mt a year. The actual demand will be lower if the PTA unit is under maintenance. Hengli Petrochemical’s acetic acid demand has been basically coming from Hualu-Hengsheng, Jiangsu Sopo, Shanghai Huayi and Celanese, etc., in long-term contracts. If the 350,000 mt/yr acetic acid unit is operating at 70% of capacity, there will be another 20,000 mt of acetic acid supply per month, which could meet self-use, or be sold in small amounts.

    China has been seeing a capacity glut for glacial acetic acid in 2019, as many companies’ latent capacity was invigorated in view of short supply in 2018 caused by huge exports. Glacial acetic acid exports, however, declined in 2019, which together with weak domestic demand and output rises, resulted in a capacity glut. Hence, if the 350,000 mt/yr acetic acid unit comes online at this moment, and is operated in normal conditions, there will be ample acetic acid supply in Northeast China, North Hebei and East China.

    Hengli Petrochemical’s newly-added 2.5 million mt/yr PTA unit is under construction, and is expected to come online at the end of 2019 or the beginning of 2020. The company’s PTA capacity will reach 9.1 million mt/yr upon then. If the unit is operating at 80% of capacity, 280,000 mt of acetic acid will be needed per year theoretically. If the 3.5 million mt/yr acetic acid unit is operating at 80% of capacity, 280,000 mt of acetic acid will be produced per year, which could basically meet internal demand.

    New pattern, opportunities in China petrochemical market

    China’s petrochemical industry is facing a wave of planning, construction and operation of large-scale refining and petrochemical complexes with the participation of private enterprises, state-owned oil majors and international oil giants, which will impose significant impact on the petrochemical market. Private enterprises are concentrating their efforts on building an industrial chain of refining and petrochemical complexes. Hengli Group brought on stream its refining and petrochemical complex in Changxing Island, Dalian. Zhejiang Petrochemical’s phase I refining and petrochemical complex will be completed and put into operation soon. Shenghong Group started up construction of its refining and petrochemical complex. Sinochem and China Risun Group Limited will start to build a joint-venture refining and petrochemical complex. Constructions of refining and petrochemical complex led by state-owned oil majors like the Zhanjiang project between Sinopec and Kuwait Petroleum Corporation, the Jieyang project between PetroChina and PDVSA and the phase II of Sinochem Quanzhou Petrochemical are underway. International oil giants including Exxon Mobil and BASF are also putting forward their wholly-owned refining and petrochemical projects in China. Shell, SABIC and Saudi Aramco will carry out cooperation with Chinese petrochemical companies in the field of petrochemicals. In addition, Shandong independent refiners are promoting transformation and upgrading, with a large refining and petrochemical complex in Yulong island under plan.

    With the advancement of these large-scale refining and petrochemical complex projects, the patterns of China’s petrochemical industry will change dramatically, which stimulates market participants to make adjustments to catch up with the changes and find new opportunities.

    Hengli Group, which was established in 1994, has become an international enterprise with oil refining, chemicals, petrochemicals, new polyester materials and textile as its main business and full industry chains. It is also engaged in trade, finance and thermoelectricity. The company continued to develop in the upstream in 2010 when it invested CNY150 billion ($21.7 billion) in the Hengli Industrial Park in Dalian’s Changxing Island, one of China’s seven petrochemical bases. After that, the company started preparations for a 20 million mt/yr (400,000 bbl/day) refining and petrochemical complex project and a 1.50 million mt/yr ethylene project. The project, with a processing capacity of 20 million mt/yr for crude oil, was the company’s major investment in 2017. The first crude distillation unit (200,000 bbl/day) under this project was put into operation in the last month of 2018 and started to produce qualified products on January 21, 2019. In addition to the CDUs, this project consists of continuous reformers with a total capacity of 9.60 million mt/yr, PX units with a combined capacity of 4.50 million mt/yr, MTBE units, isomerization units, alkylation units and some other units. It is expected to produce each year a total of 9.92 million mt of gasoline, diesel and jet fuel, 4.50 million mt of PX, 1.62 million mt of light chemical oils, 960,000 mt of purified benzene, 940,000 mt of LPG, 540,000 mt of lubricating base oils, 500,000 mt of sulfur, 850,000 mt of polypropylene, 350,000 mt of acetic acid, 130,000 mt of heavy aromatics and some other products. This is the key project for the company to upgrade its units and production and achieve a full industry chain in the polyester chemical fiber industry.