PP plant operations under dual control policy

Recently, the National Development and Reform Commission, China's top economic planning body, rarely and directly pointed out that the energy consumption intensity of 9 provinces and autonomous regions increased instead of decreasing in the first half of the year compared with the same period last year. In addition, the reduction rate of energy consumption intensity of 10 provinces did not meet the progress requirements. It meant that more than half of the provinces failed to achieve the goal of controlling energy consumption and intensity in the first half of the year. The actions in various localities against the goal of controlling energy consumption and intensity, so-called "Double Control", has begun to arouse general concern in society.

In mid-Aug, the National Development and Reform Commission issued a notice entitled "The completion of the double control targets for energy consumption in the first half of 2021 by region" and requested that from the date of issuance of this notice, the energy-saving review of projects with high energy consumption and high emission (except major projects planned and laid out by the China government) will be suspended in 2021 for regions (prefecture-level cities, states and leagues) where energy consumption intensity does not decrease but increases. Within 20 working days after the issuance of this notice, the list of areas that have suspended the energy-saving review of the projects with high energy consumption and high emission will be submitted to the National Development and Reform Commission.

Note: 1. The data of Tibet has been acquired and it not included in the early warning range. The ranking is based on the reduction rate of energy consumption intensity in each region.

2. Red is level 1 warning, indicating that the situation is quite severe and the double control progress target has not been achieved, with gap between the actual value and the target value at more than 10%.Orange is level 2 warning, indicating that the situation is relatively severe and the double control progress target has not been achieved, with gap between the actual value and the target value at lower than 10%. Green is level 3 warning, indicating generally smooth progress.

On Sep 15, affected by the dual control policy, PP futures for Jan, 2022, opens at 8623yuan/mt and fluctuates to close at 9036yuan/mt, up 453 or 5.28% from the previous settlement. The open interest increases 84665 lots to 549508 lots, and the turnover totals 1259743 lots. The main reason should be that notice issued by the Yulin Municipal Development and Reform Commission on the target task of dual control of energy consumption in Yulin City in 2021, which involved polypropylene. Shenhua Yulin, ChinaCoal Shaanxi Yulin, Shaanxi Yanchang ChinaCoal and other plants are on the list.

China is the world's largest coal producing country, based on this, coal-based PP production capacity (including MTO PP) accounts for a large proportion of China domestic PP production capacity. As of August 2020, coal-based PP production capacity (including MTO PP) is about 8.52 million tons, accounting for about 28%, of which the northwest region accounts for 84% of China.

Since the beginning of 2021, due to the persistently high prices of coal and methanol, the cost of coal-to-olefin has been rising, and coal enterprises are facing a situation of huge losses. At present, under the background of dual energy control policy, what is the production situation of various coal plants?

According to the CCFGroup's recent market research, at present, only Datang Duolun is definitely affected by dual control policy. Some plants such as Yan'an Energy & Chemical and Shenhua Baotou all scheduled for maintenance. Of other plants, most are running normally, among them, the operating rate of Pucheng Clean Energy reduced to around 80%, and the upstream MTO plants of Ningbo Fund and Jiutai Energy lower their operating rate while PP plants still maintain normal production. On the whole, currently, the dual control policy has little effect on the PP market, and it is more emotional changes.

At present, most of the plants in Yulin have just received the notice of the document, and some plants have indicated that they have not received the notice temporarily. The specific production reduction measures in the later period are still under discussion, and CCFGroup will continue to follow up on the specific production reduction and suspension measures.

Up to now, Shenhua Baotou shut for maintenance, the planned maintenance of the plant in September has been fully implemented, that is, in the second half of September, if there will be no accident, there will be no new maintenance plant, and the phenomenon of temporary shut and accidental shut will not be ruled out. By Sep 15, the production capacity of China domestic closed plants has reached 4.065 million tons/year.