China PDH plant economics recover as propane prices fall faster than propylene
Singapore (Platts)–15 Jan 2016 1242 am EST/542 GMT
China's propane dehydrogenation plant economics are back in the black after languishing in negative territory for about four months, according to Platts data.
The profit margin of PDH plant operators moved into positive territory January 6, with the CFR China propylene price at $16.20/mt above the breakeven level.
The spot price has since stayed above breakeven. It had slid below the breakeven level September 10 last year, with the margin at minus $3/mt.
At its deepest trough, CFR China propylene was $242.80/mt below breakeven, on November 25, 2015.
The poor margins environment saw heavy PDH plant shutdowns in China late last year, where PDH plants were also seen reselling propane into the spot market.
The breakeven level for propylene production through PDH plants is calculated by using Platts CFR South China refrigerated propane assessment, times 1.2, plus an additional $200/mt.
The recent rebound in margins comes despite weakening propylene prices on a CFR China basis, as propane prices fell faster.
CFR China propylene shed 5.7% since the start of the year to be assessed at $599/mt on Wednesday, amid weak downstream demand in China, and exchange rate concerns that dampened the attractiveness of importing dollar-denominated cargoes.
The impending Lunar New Year holidays in February also slowed market activity.
A Hong Kong-based trader said he had not been participating in the spot market for two weeks.
"Maybe [I'll] wait a bit longer, as I feel the market may fall further," he said, adding that he felt demand would flag as Lunar New Year nears.
Meanwhile, the CFR South China propane price has fallen 13.6% since January 4.
The benchmark CFR North Asia propane price recently slid to around 12-year lows. The CFR South China price typically tracks the CFR North Asia price.
The drop was due to an abundance of supply, and was in line with the drop in crude, as well as improved profitability. It has encouraged PDH plant operators to return to production from shutdowns late last year, trade sources said.
This has prompted at least two PDH plants — Ningbo Haiyue and Yantai Wanhua — to each seek at least 22,000-mt cargoes for February, traders said. Yantai Wanhua is running its 750,000 mt/year plant at 60%-70% of its production capacity following a restart over January 2-3, after an unplanned shutdown.
While the PDH plant operators are not expected to raise their term volumes to meet basic requirements, any incremental demand would be met by spot purchases, trades added.
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