Environmental Inspections on China Petrochemical Sector Tightens: Productions to Decline

China’s petrochemical sector is compelled to operate at low production rates and impose shutdowns on some of its refineries and production plants at the prospect of a month-long environmental audit that is being conducted in the five Chinese provinces laden with most petrochemical facilities. 

In order to assess the abidance of China’s petrochemical facilities to the environmental regulations, the Ministry of Environment and Ecology (MEE), on August 25-September 2, has sent delegations to 5 petrochemical hubs of China i.e., Shandong (east), Jilin (northeast), Hubei (central), Sichuan (southwest) and Guangdong (south).

Prior to the environmental checks, the provincial authorities have ordered a cut-down of the operating rates and closing of plant facilities that are responsible for high carbon footprints. The implementation of the order could be seen in eastern China, where independent refineries have started running at 40% lower operating rates, while two plants having the capacity of 4200 KTPA have completely stopped production. Jianlan Chemical also had to force-shut two of its 2-ethylhexanol plants two days prior to the arrival of the MEE team of auditors. The plants with a capacity equal to or lower than 210 KTPA will not be seeing the light of day before the inspection is over. The propylene oxide production facilities at Shandong have also reduced their capacity utilization by 20-30% because of their faulty sewage-disposal system, and the resumption of these plants is not to be expected sooner. 

The repercussions of the halts in plant operations will directly affect the supplies of Propylene Oxide, Acetic Acid, Epoxy Resin, Fertilizers, Coal-Based Methanol and other downstream products.

According to the chemical market analysis, Propylene Oxide is a petrochemical feedstock that is majorly used for producing Polyether Polyols that are further utilized to develop flexible and rigid Polyurethane Foams. The flexible Polyurethanes find application in furniture, beddings while the rigid foams are used in building insulations and appliances. The end-user sectors comprising of automotive, construction, furnishings and electronics are the major drivers for the rising demand for Propylene Oxide whose global market is expected to reach USD 29.5 billion by 2026. Asia-Pacific region holds the largest market share for Propylene Oxide owing to the increasing construction activities and elevating living standards. However, the backing of bio-based polyurethane production by the new environmental laws pose a continuous threat to the Propylene Oxide market.

As per ChemAnalyst, the reduced operating rates and plant shutdowns in China is going to severely affect the supplies of the petrochemical products in the end-user sectors, which may escalate the prices of the downstream products. Furthermore, the continued lowering of the production may also hamper China’s market competitiveness at the global level.