Energy consumption curbs start to bite Chinese petchem markets

As climate change emerges as one of the most crucial environmental issues worldwide, China’s government is ramping up efforts to lower carbon dioxide emissions. In line with the country’s environmental plans, tougher punishments have recently been announced for regions falling short of their targets set out by the National Development and Reform Commission (NDRC).

China -the world’s largest emitter of carbon dioxide annually since 2006- has made a variety of pledges to address its carbon emission problems. These pledges included reaching peak carbon dioxide emissions before 2030 and achieving carbon neutrality by 2060.

However, nine provinces and regions in China, including Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu, failed to meet the “dual control” targets aimed at controlling energy use. According to NDRC, those regions instead increased their energy consumption on an annual basis in the first half of the year.

According to market sources, China’s major coal reserves and the majority of its coal-to-olefins facilities are located in the north and north-western provinces, which include Qinghai, Ningxia, Xinjiang, Inner Mongolia and Shaanxi that failed to meet their “dual control” targets.

Production cutbacks in both petchem and downstream plants

Chinese media also pointed out that several measures have been taken by the authorities to control energy consumption and energy intensity. According to notices issued by authorities, power rationing was enforced in several regions and enterprises consuming high-energy were ordered to stop production temporarily or limit their operations to certain days of the week.

“The notice issued in Yulin, Shaanxi will affect an estimated 3.1 million tons carbide and 1.75 million tons of PVC. Jiangsu and Shandong provinces also began to implement energy restrictions. In Jıangsu, the impact is apparent for ethylene-based PVC, which constitutes an estimated 2.5% of total capacity of China,” a trader based in Hangzhou told ChemOrbis.

The trader also pointed out that operations have already been running low while some plants are undergoing turnarounds shutdowns. “Downstream plants in Foshan, Guangdong are only allowed to operate 2 days a week while manufacturers in Zhejiang operate only 5 days a week,” the trader added.

PP, PE players: Energy restrictions might offset pressure from new capacities

The notice issued in Yulin, Shaanxi, caused an immediate reaction on futures on the Dalian Commodity Exchange. January LLDPE and PP futures settled CNY450-453/ton ($70/ton) higher while PVC futures increased by CNY230/ton ($36/ton) on September 15. The impact continued to affect pricing on September 16, during which LLDPE, PP and PVC futures rose by CNY365/ton ($57/ton), CNY309/ton ($48/ton) and CNY335/ton ($52/ton), respectively.

“Futures and spot offers surged following the control measures news but they eased over the following days. As for the long-term impact, those energy restrictions might offset pressure from new capacities,” a trader based in Xinjiang commented.

“Coal-based PP accounts for around 22% of total PP capacity in China. This affected privately-owned PP plants. The impact on state-owned Sinopec and CNPC is uncertain as of yet –though it might be less pronounced as compared to private companies.

Zhongtian Hechuang’s PP unit was shut down due to those measures and Datang Int’l Power’s PP unit was also taken offline. Shenhua Baotou’s CTO unit as well as LLDPE and PP plants were all shut for maintenance by mid-September. We are not sure whether other producers will be forced to reduce rates or shut down in the coming days,” another trader said to ChemOrbis.