By Chi Hongquan, Sinopec Qilu Company

Supply-demand contradictions show up, capacity expansion slows down

China has 51 polyether polyols (PPG) producers in 2019, with capacities totalling 5 341 kt/a, flat from 2018. Their average run rate stood at 60-62% and output amounted to 3 319 kt, up by 4.93% year on year. Table 1 shows the production capacity of China’s PPG plants in 2019. Domestic PPG capacities are mainly distributed in the eastern coastal regions, especially in Shandong, Jiangsu, Zhejiang and Shanghai. In 2019, east China posted a combined capacity of 2 208 kt/a, accounting for 41% of the domestic total, of which, Shandong housed 1 850 kt/a of capacities, covering 35%. The share of south China, northeast China and north China was respectively at 10%, 8% and 6%. Figure 1 shows the regional distribution of China’s PPG capacity in 2019.

Figure 1 Regional distribution of China’s PPG capacity in 2019

   In terms of product properties, China’s PPG products can be divided into soft PPG, rigid PPG and other grades, respectively accounting for 65%, 31% and 4% in capacity. Soft PPG can be further divided into soft foam PPG, POP PPG, high resilience PPG and elastomer PPG. Soft foam has 1 517 kt/a of capacities, covering 44% of the total soft grades, while POP, high resilience and elastomer respectively take up 23%, 18% and 16%.
   Domestic PPG capacity and output had been expanding during 2015-2019, with the average capacity annual growth rate of around 3.4%, output of around 6.6% and average plant run rate at around 50%. The expansion rate in capacity and output both slowed down in recent two years. A few plants were closed due to China’s rising requirements of safety production and environmental protection, surplus capacity of basic polyether, competitions posed by imports and slim margins. In 2019, Kukdo Chemical (Kunshan) and Zhejiang Pacific Chemical shut their plants. Tianjin Petrochemical and Changhua Technology expanded and started up their plants and additional capacities concentrated in high resilience PPG, POP PPG and elastomer PPG. Figure 2 shows the growth in China’s PPG capacity, output and operating rate in 2015-2019.  

Figure 2 China’s PPG capacity, output and operating rate in 2015-2019

Imports lack growth momentum, exports post rapid increase

   China imported 560 kt of PPG in 2019, up by only 1.1% year on year and the import volume gradually stabilised during 2015-2019. Major import origins include Saudi Arabia, Singapore and Thailand, accounting for 20%, 20% and 19% of the domestic total. The imports mainly flowed into Shanghai, Guangdong and Jiangsu, occupying 31%, 29% and 17% of the total respectively.
   China exported 752 kt of PPG in 2019, hitting a five-year high and up by 38% year on year. The cumulative growth rate of PPG exports in 2015-2019 reached 80.34%. Major export destinations include surrounding countries and some neighboring countries in the Middle East and Central Asia. The top three export destinations in 2019 were Vietnam, India and Iran, accounting for 12%, 6% and 6% of China’s PPG exports. Cargoes mainly flowed out from Jiangsu, Shanghai and Shandong, occupying 30%, 20% and 19% of the total PPG export supply. Figure 3 shows China PPG imports and exports in 2015-2019. 

Figure 3 China PPG imports and exports in 2015-2019

Domestic market saturated, supply outstrips demand

   China’s major PPG downstream consuming fields include sponge, shoe materials, refrigerators, automobiles, adhesives, sports goods and waterproofing coatings etc. The top 2 consumers, sponge and shoe materials industries mainly use soft PPG, while the third largest consumer, automobiles use both soft and rigid foam PPG. Refrigerators and water heaters account for the largest proportion of rigid foam PPG consumption. East and south China are two major consuming regions of PPG. The eastern coastal market has become saturated and demand in inland areas will increase further. Figure 4 shows the demand proportion of China’s PPG products in 2019. 

Figure 4 Demand proportion of China’s PPG products in 2019

   In 2015-2019, domestic PPG consumption kept rising, with the average annual growth rate at 5.1%, but nearly 1.5 percentage points lower than the increase in supply. China’s apparent PPG consumption stood at 3 127 kt in 2019, down by 1.42% year on year. This led to a 192 kt of surplus supply, compared to a generally balanced market in 2018. Demand from the downstream waterproofing, plastic runway and refrigerators industries was relatively brisk, but upholstered furniture and automobile sectors, which account for nearly 30% of PPG consumption posted weak demand. Soft foam PPG, POP PPG and high resilience PPG reported a year-on-year drop in demand of 2.73%, 1.55% and 6.65%, respectively. Rigid foam PPG, elastomer PPG and other PPG products logged in a year-on-year rise in demand of 1.29%, 2.71% and 3.57% respectively. Figure 5 shows China’s PPG supply-demand balance in 2015-2019.  

        Figure 5 China PPG supply-demand balance, 2015-2019

   There will be 14 PPG renovation and expansion projects in China during 2020-2024, with new capacities at 2 925 kt/a. The new units will be distributed in south China, Shandong, east China, north China, northeast China and central China. Capacity expansions focus on high resilience PPG, POP PPG and elastomer products, boasting sound margins and relatively small supply pressure. Details are shown in Table 2.  

   China’s PPG industry is facing an imbalance between supply and demand. Basic PPG materials have a relatively low threshold of technology and capital and thus, suffering acute overcapacity and slim margins. While the supply of high-end PPG products remains tight, especially for high resilience PPG, POP PPG and specialty PPG, which have relatively high entry requirements of technology and equipment.
   New PPG plants, with capacities totalling 1 625 kt/a will start up in China during 2020, with output likely reaching around 3.4 million tons. Supply will continue to increase as a result. Figure 6 is the forecast of China’s PPG supply-demand in 2020-2024. Domestic PPG capacity will amount to 8 260 kt/a by 2024. Although domestic demand has shrunk since 2019, the robust growth in export demand is expected to keep overall PPG demand growth in positive territory. China’s PPG demand may increase by 8.48% in 2020-2024. With the domestic market saturated, PPG imports are likely to fall and some backdated units will be phased out or replaced by new ones. The industry concentration level may increase and regional competition will remain very fierce.

Figure 6 China PPG supply-demand forecast in 2020-2024

   The PPG industry will develop towards more refined and more cost-effective products to meet downstream demand. It is the only way for Chinese PPG producers to reduce costs and improve competitiveness by expanding product categories, improving product quality, expanding device scale and forming an integrated upstream and downstream industrial chain.