The total production capacity of epoxy propane is nearly 10 million tons!

In the past five years, the production capacity utilization rate of epoxy propane in China has mostly remained above 80%. However, since 2020, the speed of production capacity deployment has accelerated, which has also led to a decrease in import dependence. It is expected that in the future, with the addition of new production capacity in China, epoxy propane will complete import substitution and may seek export.

According to data from Luft and Bloomberg, as of the end of 2022, the global production capacity of epoxy propane is approximately 12.5 million tons, mainly concentrated in Northeast Asia, North America, and Europe. Among them, China’s production capacity has reached 4.84 million tons, accounting for nearly 40%, ranking first in the world. It is expected that between 2023 and 2025, the new global production capacity of epoxy propane will be concentrated in China, with an annual growth rate of over 25%. By the end of 2025, China’s total production capacity will be close to 10 million tons, with global production capacity accounting for over 40%.

In terms of demand, the downstream of epoxy propane in China is mainly used for the production of polyether polyols, accounting for over 70%. However, polyether polyols have entered a situation of overcapacity, so more production needs to be digested through exports. We found a high correlation between the production of new energy vehicles, furniture retail and export volume, and the cumulative apparent demand for propylene oxide compared to the same period last year. In August, the retail sales of furniture and the cumulative production of new energy vehicles performed well, while the cumulative export volume of furniture continued to decline year-on-year. Therefore, the good performance of furniture domestic demand and new energy vehicles will still promote the demand for epoxy propane in the short term.

Significant increase in styrene production capacity and intensified competition

The styrene industry in China has entered a mature stage, with a high degree of market liberalization and no obvious industry entry barriers. The distribution of production capacity is mainly composed of large enterprises such as Sinopec and PetroChina, as well as private enterprises and joint ventures. On September 26, 2019, styrene futures were officially listed and traded on the Dalian Commodity Exchange.

As a key link in the upstream and downstream industrial chain, styrene plays an important role in the production of crude oil, coal, rubber, plastics, and other products. In recent years, China’s styrene production capacity and output have grown rapidly. In 2022, the total production capacity of styrene in China reached 17.37 million tons, an increase of 3.09 million tons compared to the previous year. If the planned devices can be put into operation on schedule, the total production capacity will reach 21.67 million tons, an increase of 4.3 million tons.

Between 2020 and 2022, China’s styrene production reached 10.07 million tons, 12.03 million tons, and 13.88 million tons, respectively; The import volume is 2.83 million tons, 1.69 million tons, and 1.14 million tons respectively; The export volume is 27000 tons, 235000 tons, and 563000 tons, respectively. Before 2022, China had been a net importer of styrene, but the self-sufficiency rate of styrene in China reached as high as 96% in 2022. It is expected that by 2024 or 2025, the import and export volume will reach a balance, and China will become a net exporter of styrene.

In terms of downstream consumption, styrene is mainly used for the production of products such as PS, EPS, and ABS. Among them, the consumption proportions of PS, EPS, and ABS are 24.6%, 24.3%, and 21%, respectively. However, the long-term capacity utilization of PS and EPS is insufficient, and the new capacity has been limited in recent years. In contrast, ABS has steadily increased demand due to its concentrated production capacity distribution and considerable industry profits. In 2022, the domestic ABS production capacity is 5.57 million tons. In the following years, domestic ABS plans to increase production capacity by approximately 5.16 million tons per year, reaching a total production capacity of 9.36 million tons per year. With the production of these new devices, it is expected that the proportion of ABS consumption in downstream styrene consumption will gradually increase in the future. If the planned downstream production can be successfully achieved, it is expected that ABS may overtake EPS as the largest downstream product of styrene in 2024 or 2025.

However, the domestic EPS market is facing a situation of oversupply, with obvious regional sales characteristics. Affected by the COVID-19, the state’s regulation of the real estate market, the withdrawal of policy dividends from the home appliance market, and the complex macro import and export environment, the demand of the EPS market is under pressure. Nevertheless, due to the abundant resources of styrene and the widespread demand for various quality goods, coupled with relatively low industry entry barriers, new EPS production capacity continues to be launched. However, against the backdrop of difficulty in matching downstream demand growth, the phenomenon of “involution” in the domestic EPS industry may continue to escalate.

As for the PS market, although the total production capacity has reached 7.24 million tons, in the coming years, PS plans to add approximately 2.41 million tons/year of new production capacity, reaching a total production capacity of 9.65 million tons/year. However, given the poor efficiency of PS, it is expected that many new production capacity will be difficult to start production in a timely manner, and the sluggish downstream consumption will further increase the pressure of oversupply.

In terms of trade flows, in the past, styrene from the United States, the Middle East, Europe, and Southeast Asia flowed to Northeast Asia, India, and South America. However, in 2022, there were some changes in trade flows, with the main export destinations becoming the Middle East, North America, and Southeast Asia, while the main inflow areas were Northeast Asia, India, Europe, and South America. The Middle East region is the world’s largest exporter of styrene products, with its main export directions including Europe, Northeast Asia, and India. North America is the world’s second largest exporter of styrene products, with most of the US supply exported to Mexico and South America, while the rest is shipped to Asia and Europe. Southeast Asian countries such as Singapore, Indonesia, and Malaysia also export certain styrene products, mainly to Northeast Asia, South Asia, and India. Northeast Asia is the world’s largest importer of styrene, with China and South Korea being the main importing countries. However, in the past two years, with the continuous high-speed expansion of China’s styrene production capacity and the huge changes in the international regional price difference, China’s export growth has increased significantly, the opportunities for reverse arbitrage to South Korea, China have increased, and ocean transportation has also expanded to Europe, Türkiye and other places. Although there is a high demand for styrene in the South Asian and Indian markets, they are currently important importers of styrene products due to a lack of ethylene resources and fewer styrene plants.

In the future, China’s styrene industry will compete with imports from South Korea, Japan and other countries in the domestic market, and then begin to compete with other sources of goods in markets outside Chinese Mainland. This will lead to a redistribution in the global market.