By Rebecca Kanthor
CORRESPONDENT
Published: October 28, 2014 3:45 pm ET
Updated: October 28, 2014 3:47 pm ET

Image By: Rebecca Kanthor
Gao Liping

SHANGHAI — China’s polyolefin suppliers are shifting from using oil to coal or natural gas as their feedstock, according to experts at the FlexPO conference, held Oct. 22-24 in Shanghai.

Qi Min, director of ICIS China said some suppliers in Asia are closing down plants that use naptha or switching to coal-based feedstocks. The cost of naptha, which is derived from oil, is relatively more expensive than other feedstocks, “so you will see it will not be used in the future,” she said.

Evelyn Chen, senior project manager of TZMI, China added that naphtha-based ethylene has the highest cost. On the other hand, demand for natural gas-based ethylene has been increasing and there is a slight surplus. “The obvious cost advantage of gas-based ethylene is a major driver for the increase,” she said.

Qi added that the macroeconomic environment is having its toll on polypropylene and polyethylene demand in China. In the past, the demand growth rate was typically 15-20 percent, but now it’s lower than 20 percent, she said. “This is a very big challenge.”

Gao Liping, senior consultant at CNCIC, China, discussed the growth in demand for polyolefins in China, particularly PP and PE. Demand for imports of PP, as well as its production and consumption, have been rising steadily in China since 2002, she said.

Nearly half of imported PE and one third of PP in China is coming from the Middle East, she added.

As for domestic production, production capacities are growing faster and becoming more advanced, and investors are beginning to diversify. There are coal-to-olefin projects in operation in China, mostly in the north and western region of the country. Sinopec and CNPC used to be the companies investing in those projects, but now “foreign- and Taiwan-funded private and large coal and electric power enterprises are entering the PO industry,” she said.

Gao said polyolefin supplies will jump in the coming years.

“Most ethylene and propylene products are expected to be converted to PE and PP in coal-to-olefin plants. Therefore the development of the coal-to-olefin industry will largely accelerate the PO supply in China.” She added that the feedstock structure will change dramatically in the coming years. In the next few years, 80 percent of PE capacity addition and 64 percent of PP capacity addition will derive from coal-to-olefins, she said.

In recent years she said, China’s polyolefin market has changed from “overall shortage” to “structural oversupply and structural shortage.” “For a long time,” she added, “Chinese PO manufacturers chose to produce general grades, which was most of the market demand.” But she sees that with awareness of the overcapacity, “Chinese enterprises are paying attention to higher and specialty products to compete with foreign companies.”

China’s pollution concerns also are having an impact on the olefin industry. “The cost advantage of coal-based olefins has been challenged,” Chen said, “because of pollution concerns and price.” There is some talk of pollution taxation, she added, which may limit coal-to-olefin production.

Yu Ting of ICIS China said, “industry market players will focus on environmental issues,” adding: “We should find a solution.”