China's PDH production braces for slump in run rates or shutdowns as tariff costs surge

Chinese petrochemical producers, who rely on US liquefied petroleum gas (LPG) for processing propane into propylene, have already been running their PDH plants at reduced rates of around 70-75%. According to Reuters, they are expected to reduce output further or shut down for maintenance in the coming weeks. This comes as Beijing’s retaliatory tariffs on US imports drive up costs. The industry, which includes over 30 propane dehydrogenation (PDH) plants, is heavily dependent on US LGP, which is rich in propane.

A trader pointed out that about 25% of China’s PP comes from PDH processes, with roughly 60% of the propane feedstock sourced from the US. The new tariffs could increase costs for around 15% of China’s total PP output, potentially inflating production costs by up to 40%.

The trade war escalated on Wednesday when China increased retaliatory duties on US imports to 84%, further tightening the pressure on an already struggling PDH sector. In response, Trump temporarily lifted the steep tariffs he had imposed on dozens of countries while intensifying pressure on China with 125% duties. One East China-based executive from a major PDH plant described the situation as a "harsh winter," expecting plant utilization to drop below 50% of total capacity as early as May.

The PDH sector, which processed 731,000 bpd in March, is operating well below its peak capacity of 85% in 2020. As of April 6, plants were losing an average of 480 yuan ($65.31) per ton, deepening from the previous week’s 384 yuan, according to LSEG Oil Research.

The ongoing trade tensions mirror the earlier period during President Donald Trump’s first term when China’s LPG imports were halted for nearly two years. Back then, the industry was much smaller, and operators relied on Middle Eastern cargoes as replacements. However, since then, the boom in US shale gas has led to the rapid expansion of PDH plants along China’s East Coast, resulting in overcapacity amid weakening propylene demand.

Prices for US propane have fallen nearly 30% to $425 per ton this week, as traders anticipate the impact of China’s retaliatory tariffs.

With limited options to replace US shipments, China may have to pivot to alternative suppliers such as the Middle East, which would raise freight costs and undermine the competitiveness of some plants. Meanwhile, Middle Eastern propane is mainly directed to South Korea and India. Therefore, the market remains in a state of confusion, with buyers and sellers struggling to reach agreements.