The announcement of tariffs is causing ripples on the global oil market, resulting in a greater focus on possible reciprocal action and its fundamental effects along the oil to olefins chain.
The presence of carbon-carbon double bond is a characteristic feature for alkenes or olefins.
These compounds are used as precursors for a variety of products such as detergents and plastics.
Rystad energy says that the trade war between China and the US is narrowing and natural gas liquids are a major point of disagreement. This shows the interdependence of the two countries on the NGLs, naphtha and olefins market.
In an email, Manish Sejwal of Rystad Energy, Vice President, Commodity Markets Analysis, said that a steep tariff of 125% on US propane could have a severe impact on China’s PDH sector. This industry is heavily dependent on the cost-effective US propane feedstock.
Rystad’s analysis shows that a 10-20% reduction in propylene usage could lead to tighter markets for both Korean PDH crackers and naphtha.
China’s dependence on US propane and its propylene production
China’s production of propylene via propane dehydrogenation has increased by over 3000% in five years and now exceeds 21 million tonnes.
The US Shale Gas Revolution, and in particular the Permian basin, has led to a dramatic rise of propane prices.
The US is the world’s largest propane exporter due to the limited domestic demand.
In 2024, US propane will account for almost 60% of China’s total imports.
Exports of US LPG remained robust in April. The shipment to Asia, and specifically China, saw a slight decrease. However, the increase in exports elsewhere offset this.
The volume of US LPG exported makes it unlikely that China will be completely displaced.
The PDH industry in China would suffer severe losses if China imposed a tariff of 125% on US propane. This is because the feedstock cost was high and there were few alternative sources.
Sejwal stated that such a move could lead to a propane surplus in the US and put downward pressure on US prices for LPG.
Rystad Energy has projected that the tariff could have a significant impact on China’s PDH plants, resulting in an utilisation rate drop of 10-20% due to the shortage of other propane suppliers.
The reduction in propane consumption could reduce the demand for it by around 120,000 bpd if the drop is 10%, or 210,000 bpd if its drop is 20%.
Asia’s margins are improving
As a result, we expect tighter fundamentals in propylene, which could rebalance the propylene oversupply market, and improve temporarily margins for Asian PDH and steam cracker operators.
Sejwal is noted
It would be a good opportunity for Korean PDH operators to boost their run rates in Asia.
The increased ethylene production and the subdued outlook of demand for derivatives – influenced by tariffs – are likely to restrain increases in cracker rates, and therefore, growth in naphtha from these units.
Naphtha Market
Rystad expects the naphtha market in China will grow by approximately 250,000 barrels per day, largely due to new capacity in China that is not integrated.
In the short term, refineries will likely maintain their current levels of production.
The shift to electric and gas powered vehicles in China will increase the supply of naphtha.
It is expected that the excess naphtha will be diverted to the petrochemical sector, specifically steam cracking for aromatics and production of aromatics.
Sejwal is now added to the list
The weaker outlook for product cracks would also discourage refiners from increasing runs.
Rystad says that the recent strengthening of cracks of naphtha in Asia can be attributed to the limited imports of West of Suez as well as the start-up of an entirely new cracker in China in April.
Western naphtha is in short supply due to refinery closures across Europe, the UK and Middle East, as well as maintenance at Skikda, a key exporter.
Rystad expects Asian naphtha cracks to be stronger than last year.
The strength of cracks can be attributed to the reduced Western naphtha supplies, resulting from European refinery closures. This is in line with an increase in demand for new Chinese crackers, which were not fully integrated.
The energy intelligence firm said that the reliance of the region on naphtha imports is likely to increase.
The ICD published this post US-China Tariff dispute Threatens Propane Market, Impacts Olefins Supply first.
This site is for entertainment only. Click here to read more
