China's LPG demand is expected to continue growing in 2017, driven by strong petrochemical and industrial consumption, but at a slower rate because fewer propane dehydrogenation plants are scheduled to start up this year, analysts and market sources said.
S&P Global Platts China Oil Analytics forecasts LPG demand growth in 2017 of around 10%, well below 2016's 24%.
Demand in 2016 -- comprising domestic production and net imports -- was estimated by Platts Analytics at around 49 million mt, up 24% from around 39.55 million mt in 2015, according to calculations based on data from the General Administration of Customs and the National Bureau of Statistics.
A source from Chinese importer Oriental Energy said they expected net LPG imports to rise by around 3 million mt year on year to nearly 18 million mt in 2017.
Platts Analytics estimates China imported around 16 million mt and exported around 1.4 million mt of LPG in 2016, the equivalent of around 14.6 million mt of net imports, up by around 40% year on year.
Growth in both 2016 demand and imports was higher than market expectations early in the year of slower demand growth than 2015's 20% and import growth of around 20%. Platts Analytics is forecasting net import growth of around 22% in 2017.
Market sources attributed last year's strong growth to increasing demand from petrochemical plants -- including PDH plants -- industrial users, and residential users.
PDH DEMAND GROWTH SLOWS
"PDH plants are expected to run at their maximum rates in 2017, given profitable processing margins," said a source with one PDH plant in East China.
China's six older PDH plants, with a total capacity of 4.74 million mt, are estimated to have run at around 75% of capacity in 2016, according to data from domestic energy information provider SCI.
Their run rates are expected to increase by 10 percentage points to 85% in 2017 as the new Yantai Wanhua and Oriental Energy's PDH units reach one year of operations, a market source said.
According to Platts calculations, this would translate into a year-on-year increase in propane and butane demand of over 470,000 mt to around 4.03 million mt.
China's two new PDH plants, which came online in the fourth quarter of 2016, are expected to run at around 60% of capacity in the first year of operations, based on the historical performance of other PDH plants.
The two units -- Hebei Haiwei's 500,000 mt/year unit and Oriental Energy's 660,000 mt/year Ningbo Fuji Petrochemical unit -- are expected to add another 830,000 mt of propane demand in 2017 to an estimated combined propane consumption of around 1.39 million mt/year at full capacity.
As a result, the total LPG demand from China's PDH plants is estimated to increase by around 1.3 million mt in 2017, lower than estimated growth for 2016.
STRONG DEMAND FROM OTHER PETCHEM PLANTS
Demand for propane and butane from other petrochemical plants and units, including mixed alkane dehydrogenation plants, alkylation units and isomerization units, is expected to rise this year, market sources said.
Unlike PDH plants, these can use both domestic and imported LPG as feedstock, but many prefer the domestic butane-rich product because it is cheaper and easier to obtain, sources said.
Demand from processing plants that use butane-rich LPG as feedstock is expected to grow further this year as new plants that started operations in late 2016 are due to be ramped up, while some are scheduled to come on stream in 2017, sources said.
Qixiang Tengda, a mixed alkane dehydrogenation plant in eastern Shandong province, started operations in late 2016 and is expected to add nearly 300,000 mt of additional LPG demand in 2017 if the ramp-up process goes smoothly, a market source said.
The PO-MTBE plant in eastern Jiangsu province, a joint venture between Huntsman and Sinopec, is scheduled to start operating in Q2, and is expected to consume around 200,000 mt of LPG in 2017, an SCI analyst said.
There are also several new petrochemical plants scheduled to come online in 2017. LPG demand from the petrochemical sector is estimated to account for around 40% of total Chinese consumption, industry sources said.
Around 45% of a refinery's LPG output normally goes into the facility's downstream units for further processing or burning and only 55% is supplied to the market, sources said.
ANTI-POLLUTION DRIVE MAY BOOST INDUSTRIAL DEMAND
As a cleaner alternative to coal and fuel oil, LPG attracted more demand from the industrial sector in China in 2016 due to a tightening-up of environmental regulations, and this growth is expected to rise further in 2017, market sources said.
Demand from the industrial sector is estimated to account for around 20% of LPG consumption.
The incentive to switch from natural gas to LPG is expected to diminish in 2017, given higher crude oil prices, market sources said.
On the other hand, LPG demand from households, which accounts for around 40% of total Chinese LPG consumption, is expected to maintain moderate growth in 2017, analysts and other sources said.
