China refiners stoke petrochemical glut in market-share war

China is relentlessly adding new petrochemical capacity despite a global glut as the country's refiners diversify from transport fuels, threatening to depress margins worldwide through 2024 as weak economic growth saps demand, said Hydrocarbonprocessing.

In an ominous sign for producers of the chemicals used in plastic packaging, polyester clothing and auto parts, refiners' profit margins on processing naphtha to make ethylene turned negative last week for the first time since October.

The profit crunch is being driven by China's refiners boosting output of olefins such as ethylene to offset an expected decline in sales of petrol and diesel as electric vehicle take-up accelerates. Their capacity expansion is outpacing growth in demand for the chemicals.

Global demand for ethylene and propylene is forecast to surge 29% from 2023 to 426.8 million metric tons by 2030, while capacity is expected to jump 25% from 2023 to 485.9 million metric tons by 2030, research firm Wood Mackenzie (WoodMac) estimates.

New capacity in China is expected to make up more than half of that growth, according to the International Energy Agency. In 2023, WoodMac sees China's output growth creating a local surplus of 4.24 million metric tons of ethylene and an even bigger oversupply of propylene at 8.69 million metric tons.

"The surplus of olefins will be pushed onto the water to clear elsewhere in Asia or further afield in Europe and the U.S. at steep discounts," Energy Aspects analysts said in a note.

"This poses more risk to utilization rates in the rest of Asia and Europe, which are more sensitive to margin compression." Newly launched refinery complexes by state giant PetroChina's Guangdong Petrochemical and privately-run Jiangsu Shenghong Petrochemical have added to surging petrochemical supply from mega refiners Zhejiang Petrochemical Corp and Hengli Petrochemical that has come online in recent years.

Despite margin pressure, Chinese producers are likely to keep plants operating to protect market share and prevent deeper losses that would result from shutting units, a Chinese refining source said, declining to be named. Producers are already feeling the pain in their battle against each other for market share. Asia's largest refiner, China's state-run Sinopec Corp, warned in its first-quarter report that its chemicals business faced pressure from competing new supply and a tepid recovery in demand.

Independent refiner Hengli Petrochemical's net profit slid nearly 76% in the first quarter due to "high operating costs and low industry demand," the company said in April. Rongsheng Petrochemical and Hengyi Petrochemical swung to net losses in the first quarter. The world's largest producer and consumer of petrochemicals, China has been unable to absorb the extra output as its domestic market has struggled to recover from three years of strict COVID-19 curbs and weaker global demand for its exports.

We remind, A Chinese company plans to invest USD1.5 billion in a cathode factory in Hungary, the latest big-ticket investment that the government says will make the eastern European Union nation a hub for the electric car industry. Zhejiang Huayou Cobalt Co. will set up its first European factory in Hungary, Foreign Minister Peter Szijjarto told reporters on Wednesday. Hungary has become a meeting point for premium German car manufacturers such as Mercedes-Benz Group AG and BMW AG and Asian battery makers, mostly from China and South Korea.


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BASF Venture Capital GmbH (BVC), the corporate venture company of the BASF Group, announced an investment in the Swiss startup DePoly SA (DePoly), a sustainable plastic solutions provider developing a unique chemical recycling technology, said the company.

Founded in 2020, the company has developed a chemical recycling technology that converts mixed post-consumer and post-industrial polyester plastic waste streams, as well as polyester-containing fabrics and fibers, back into their precursors at virgin-grade quality. This process is energy efficient — operating at room temperature and standard pressure, without the need for pre-sorting, pre-washing, or removal of contaminant materials. For BVC this investment underlines BASF’s ongoing commitment to developing sustainable solutions for a circular economy.

BVC co-led DePoly’s CHF12.3M seed financing round along with Wingman Ventures, with the participation of Beiersdorf, Infinity Recycling, CIECH Ventures, Angel Invest, and others. The proceeds of the financing round will enable DePoly to accelerate the scale-up and development of its depolymerization process, leading to the building of a demonstration plant expected to be operational in 2024.

Plastics are an essential part of everyday life. But only about 10 percent are recycled, with the majority going to incineration or landfill. As brand owners increasingly aim for higher recycled content rates in their products, the demand for advanced recycling technologies is expected to grow. DePoly offers a unique solution to address this need. “Our technology has the potential to fundamentally change the lifecycle of PET plastics and reinforce the global efforts in tackling the climate challenge. We are thrilled to have BASF Venture Capital and other strategic investors in this round supporting us in implementing our solution on a larger scale,” said Samantha Anderson, CEO and co-founder of DePoly.

BASF aims to move toward a more Circular Economy by increasingly using recycled and renewable feedstocks, shaping new material cycles and creating new business models. BASF is therefore running a Circular Economy Program. By the year 2030, the company aims to double its sales generated with solutions for the circular economy to €17 B. One example for these efforts is BASF’s ChemCycling business. The investment in DePoly is another commitment towards supporting this goal.

“To truly implement the circular plastics economy, we must transform our business practices, and that requires collaborative efforts from various stakeholders. DePoly's technology offers a promising solution to address the global plastic waste challenge and concurrently support the reduction of greenhouse gas emissions related to the production of virgin plastics. We are excited to support their mission to create a more sustainable future,” said Markus Solibieda, Managing Director at BASF Venture Capital.

We remind, BASF has broken ground on a polyethylene (PE) plant at its Verbund site in Zhanjiang, China. The new plant with a capacity of 500,000 metric tons of PE annually will serve the fast-growing demand in China, said the company. The plant is scheduled to start up in 2025.

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Colombia's Ecopetrol is managing to sustain sales to Asia at about 45% of its crude oil production though rivalry from Russian oil is forcing it to offer deeper discounts, said Reuters.

It has maintained long-term supply contracts with key customers especially in China and is diversifying its sales to buyers in South Korea, India and the Gulf of Mexico, Ecopetrol Chief Financial Officer Jaime Caballero Uribe told Reuters on the sideline of the Energy Asia conference.

Ecopetrol sells mainly heavy sweet crude priced at a discount to Brent. Caballero Uribe said growing competition from Russian oil is forcing it to discount more. "The discount has widened because of Russian oil," he said. "You cannot sell at the same discount as you sold before, you have to sell at bigger discounts. That happens to all crude (grades), not only ours."

We remind, Honeywell has been selected by Ecopetrol S.A. (Ecopetrol), the largest company in Colombia and one of the main diversified energy companies on the American continent, to develop a prefeed engineering study for an Advanced Solvent Carbon Capture (ASCC) modular demonstration unit, which will be used to evaluate carbon dioxide (CO2) capture from Ecopetrol fluid catalytic cracking units (FCCUs).

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Long Son Petrochemicals, owned by SCG Chemicals, will start commercial production at its petrochemical complex in southern Vietnam in September, as per Hydrocarbonprocessing.

The company is in the process of testing each operating unit at the complex, Siam Cement Group's Roongrote Rangsiyopash said on the sidelines of an industry event. Siam Cement Group owns SCG Chemicals. Testing will be completed in July or August, so commercial operations could start around September, Rangsiyopash said.

The $5.4-B plant in Ba Ria Vung Tau province will produce polyethylene, polypropylene and basic chemicals, he said. "The total demand for the country is around 3.3 million tons of both polyethylene and polypropylene combined, our complex (production capacity) is about 1.3-1.5 million tons. So, I would assume that the majority of the products that will be consumed locally," he added.

He also said for the first year, some of the products will be exported to countries in Southeast Asia like Thailand and Indonesia to balance the supply and demand until Vietnam can fully absorb the supply. Petrochemical demand has been struggling globally recently amid economic headwinds and poor demand in China. Refiners' profit margins on processing naphtha to make ethylene turned negative this month for the first time since October.

He said there is no recovery in sight in the second half of the year, as China consumption remains poor despite their reopening. Because of slowdown in demand and lower chemical product price, 2023 revenue growth will be flat from last year, even with the increase in capacities from the LSP complex startup, he further said.

Bulk of the plant's raw materials, naphtha and propane, will be imported from the Middle East, he added. Separately, the company could list 25.2% or 3.85 billion shares in an IPO this year. Rangsiyopash said they had time until October to decide on the IPO plans and it might be shelved depending on market conditions.

We remind, Vietnam's Binh Son Refining and Petrochemical will delay the maintenance at its refinery until next year, and said it expects profits to drop 88% this year due to rising costs, including higher taxes. Binh Son said the maintenance delay would allow the company to "maximize its production, revenue and profit" this year. The 130,000-barrel-per-day refinery was originally scheduled to undergo major maintenance from June 22 to August 11 in 2023. The maintenance will now take place early next year, the company said in a statement.

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Nigeria's petrol subsidy cost state oil firm NNPC Ltd USD2.41 B in the five months through May before the program was scrapped, a report seen by Reuters showed.

Nigerian President Bola Tinubu, who's embarking on the country's biggest reforms in decades to tackle issues including a high debt burden, scrapped the popular but expensive subsidy when he took office last month. NNPC spent $10 B on the subsidy last year, making it unable to remit funds to federal accounts.

The NNPC claims it is still owed unpaid subsidy receipts by the government. "The May 2023 subsidy amounted to 307.4 billion naira, thus the outstanding balance carried forward is 3.74 billion naira as of June 2023," it said. Nigeria imports almost all its refined fuel because local refineries were shut due to years of neglect.

NNPC has been the sole importer of petrol using crude swap contracts. Because it lacks cash, it pays a consortia of foreign and local trading firms in crude oil. The NNPC's import monopoly is set to end after the industry regulator licensed private firms to start importing petrol from July, the head of the Nigerian Midstream and Downstream Petroleum Regulatory Authority said this month.

We remind, Nigeria's state oil firm NNPC Ltd is winding down crude swap contracts with traders and will pay cash for gasoline imports, its chief executive told Reuters, adding that private companies could begin importing petrol as soon as this month.

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