Coal-to-olefins may not be an immediate threat

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Shaanxi Yanchang Shaanxi Yanchang successfully launched polypropylene production on July 1.

China’s coal-derived plastics are unlikely to form any substantial impact in the resin market in the near term, as new capacity projects are running into issues.

The assessment was based on recent field research by futures analysts organized by the Dalian Commodity Exchange, according to a report by Zhang Chi, an analyst at China’s Guotai Junan Futures.

A shortage of talent has become a major issue that’s causing delays and low utilization rates, Zhang said. The root of the problem lies in the fact that many of the investors of coal-to-olefins projects come from a coal mining, power, and oil refinery background. Incentivized by potential high profitability, these companies hastily built coal-to-olefins capacity without having a sufficient reservoir of technicians and engineers.

For instance, two recently launched projects – Shaanxi Yanchang Petroleum Group’s 1.8 million ton methanol-to-olefins (MTO) project and another 1.8 million ton MTO project by China National Coal Group – both are unable to run at full capacity due to talent shortages.

The methanol-to-propylene (MTP) project by China Datang Inner Mongolia Duolun Coal Chemical Co. Ltd. may be facing even bigger challenges. Zhang commented in his July 29 article that the Datang project is “basically failing” due to both talent shortage as well as major flaws with its chemical process.

Zhang believes Datang’s coal gasification process is meeting quality standards, causing problems for downstream processes and products.

Actually, Datang also uses its own MTP catalyst developed in-house, according to previous media reports. But Zhang’s report didn’t mention it as problematic.

In contrast, Zhang said, Shenhua Baotou Coal Chemical Co.’s coal-to-olefins (CTO) project didn’t encounter talent scarcity, because it recruited fleets of experienced engineers and technicians from Sinopec and ChinaPetro.

“Not every company can take talent from Sinopec and PetroChina like Shenhua did,” Zhang noted. Shenhua is widely known as the largest coal producer in China.

But Shenhua Baotou also faces another common issue for its counterparts – environmental protection. It was ordered to suspend operations for violation of environmental regulations last Jan. Production resumed by last April, as Plastics News China (Chinese) reported.

Guotai’s Zhang noted water scarcity will be the decisive factor in limiting coal-based chemical projects, which happen to be concentrated in Northwest China – with much less precipitation than the coastal regions.

Coal-based chemical production consumes an average of 15 tons of water for each ton of final product, Zhang said.

Zhang concluded that coal-based projects will have limited impact on the PE and PP market, at least for the rest of the year.

(Thanks to Nina Ying Sun, managing editor of our Plastics News China website, for today's post.)