In the first half of 2022, domestic propylene market prices rose slightly year-on-year, with high costs being the main influencing factor supporting propylene prices. However, the continued release of new production capacity led to increased pressure on market supply, but also on the propylene price rise, the first half of the overall profitability of the propylene industry chain has declined. In the second half of the year, the pressure on the cost side may ease slightly, while the supply and demand side is expected to enhance the impact of propylene prices in the second half of the year is expected to rise and then fall, the average price level may not be as high as in the first half.

The main factors affecting the domestic propylene market in the first half of 2022 are as follows.

1. significant year-on-year cost increases, forming a favorable support for propylene prices.

2. rising total supply trend, which is a drag on propylene price increases.

3. Increased demand but shrinking downstream profits, relatively limited boost to propylene prices.

Propylene raw materials rise more than downstream products, industry chain profitability decline

In the first half of 2022, propylene industry chain product price increases from raw materials to downstream products in decreasing order. As can be seen from the table below, the price of crude oil and propane as the main raw materials for propylene rose significantly in the first half of the year, especially oil prices rose by 60.88% year-on-year, leading to a significant increase in propylene production costs. Compared to raw materials, domestic propylene prices rose less than 4% year-on-year, and the propylene industry fell into a significant loss. Propylene downstream derivatives prices fell year-on-year, mainly propylene oxide, butyl alcohol, acrylonitrile, acetone prices fell more significantly. The profitability of propylene downstream derivatives generally declined in the first half of the year due to the combination of rising raw material prices and falling prices of the products themselves.

Propylene costs rose significantly year-on-year, supporting propylene prices favorably

Costs rose significantly, with most processes falling into losses. 2022 propylene industry profitability was poor in the first half of the year, with different process propylene costs rising at different rates year-on-year, by 15%-45%, indicating a significant rise in raw material prices. Although the center of gravity of propylene prices also moved up, but the rate of increase was less than 4%. As a result, the profit of different propylene processes dropped significantly year-over-year, by 60%-262%. Except for coal-based propylene, which was slightly profitable, the rest of the propylene processes were in a significant loss.
Total propylene supply trend is rising, dragging propylene prices up

New capacity continues to be released, with simultaneous growth in capacity production. 2021 H1 includes the second phase of Zhenhai Refinery, Lihua Yi, Qi Xiang, Xinyue, Xinjiang Hengyou, Srbang, Anqing Tai Hengfa, Xintai, Tianjin Bohua, etc. A number of propylene plants have been put into operation. The new capacity is mainly distributed in Shandong and East China, with a small amount of distribution in Northwest, North and Central China. The production process of new capacity is mainly PDH, individual cracking, catalytic cracking, MTO and MTP production processes also exist. 3.58 million tons of new domestic propylene capacity was added in the first half of 2022, and the total domestic propylene capacity grew to 53.58 million tons. The release of new propylene capacity led to an increase in production, with total domestic propylene production of 22.4 million tons in H1 2022, an increase of 5.81% compared to the same period in 2021.

The average price of imports rose year-on-year, and the volume of imports shrank significantly. 2022 H1 average import price rose year-on-year, and the arbitrage opportunities for imported goods were limited. In particular, in April 2022, domestic propylene imports were only 54,600 tons, a record low in the past 14 years. total propylene imports in the first half of 2022 are expected to be 965,500 tons, down 22.46% from the same period in 2021. As the domestic propylene supply continues to increase, the import market share is further compressed, in line with market expectations.
Propylene demand increases but downstream profits shrink, relatively limited boost to propylene prices

Propylene consumption grew year-on-year with the release of new downstream capacity. 2022 H1 included the commissioning of a number of downstream units including Lianhong New Materials, Weifang Shu Skin Kang polypropylene plant, Lijin Refinery, Tianchen Qixiang acrylonitrile plant, Zhenhai II, Tianjin Bohua propylene oxide plant and ZPCC acetone plant, driving propylene consumption growth. New downstream capacity is also concentrated in Shandong and East China, with a small amount of distribution in North China. 23.74 million tons of domestic propylene downstream consumption in the first half of 2022, an increase of 7.03% compared with the same period in 2021.

Domestic enterprises are actively exporting, and propylene export volume increased year-on-year. With the rapid expansion of domestic propylene production capacity and the significant increase in competitive market pressure, some mainstream plants are actively seeking export opportunities, coupled with the emergence of arbitrage space phase, propylene export volume has increased significantly year-on-year.
Downstream products profit shrink, the ability to accept raw material prices declined. the first half of 2022 raw material prices rose, while propylene downstream derivatives prices fell mainly, the profitability of propylene downstream products generally declined. Among them, the profitability of butanol and acrylic acid is relatively stable, and the profitability of propylene method ECH is enhanced. However, polypropylene powder, acrylonitrile, phenol ketone and propylene oxide profits all shrank significantly, and the main downstream polypropylene fell into long-term losses. Propylene downstream plants’ acceptability of raw material prices declined and their purchasing enthusiasm was poor, which affected propylene demand to some extent.

Propylene prices in the second half of the year are expected to rise and then fall, with average price levels not as high as in the first half of the year

On the cost side, raw material prices are likely to fall in the second half of the year, and propylene cost support may be slightly weakened.

On the supply side, imports were relatively low in the first half of the year and are expected to increase slightly in the second half of the year as imports gradually recover. In the second half of the year, there are still some new domestic production capacity plans to put into operation, propylene supply volume continues to expand, the market supply pressure is not reduced, the supply-side impact is still strong.

The demand side, the main downstream polypropylene earnings and start-up status is still the key factor affecting propylene demand, other chemical downstream demand is expected to be relatively stable. Downward pressure may increase in November and December.

Overall, the price of propylene in the second half of the year is likely to rise and then fall, and the average price center of gravity may not be as high as in the first half of the year. The average price center of Shandong propylene market in the second half of the year is expected to be 7700-7800 yuan/ton, with a price range of 7000-8300 yuan/ton.

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