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Insight | Time: Jul 20 2020 5:14PM
Market review of BDO and PTMEG market in H1 2020
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1. BDO market review
Operation: capacity expanded further, and run rate plunged
BDO capacity expanded in the first half of 2020. Blue Ridge Tunhe’s Phase II unit started operation, and Xinjiang Tianye’s plant commenced production. BDO capacity has been at 2.12 million tons in China, up by 8% compared with the end of 2019. Capacity increased, but demand for BDO was greatly affected amid the COVID-19 pandemic. With waned demand but high inventory burden, price of BDO was substantially revised down. BDO companies encountered losses pressure after price collapsed. Many BDO units scaled down or suspended production in the second quarter of 2020. Generally, price of BDO was volatile in the first half of 2020.

Operating rate of BDO industry started falling from Feb, even down to near 20% in Apr, and remained below 40% after some plants resumed operation. The average operating rate of BDO industry was only around 50% in the first half of 2020, down by 10% on the year.

Production of BDO was near 550kt in the first half of 2020, down 8% compared with the same period of last year. Dramatically shrinking demand forced local companies to cut production and further lower stocks. BDO production has greatly dropped in H1 2020, but BDO plants are supposed to ramp up run rate to guarantee the annual production target, but the yearly production is estimated to reduce on the year in expectation of diminishing end-user demand. 

Tendency: plunged in Q2 but slightly increased on the year 

Price of BDO averaged at 8,740yuan/mt in H1 2020, up 1% on the year. Price of BDO was largely stable in the first quarter of 2020 when sellers sustained price, started decreasing slowly in Mar amid demand pressure and accelerated reducing in Apr-May, with price rapidly down to the low in 2016. BDO plants cut production when the cash flow was during negative territory.

BDO plants witnessed falling profit with falling price. Cash flow of calcium carbide based BDO faced deficit pressure from mid-May. As a result, many units that cut production or had turnaround in Apr extended restart. Due to the huge losses recently, the cash flow of BDO in H1 2020 greatly shrank to around 260yuan/mt. Price of BDO declined from high level in 2019, and losses were apparent in H1 2019, while sellers raised price in Q4, turning losses into profit. The profit of BDO slightly improved in H1 2020, but the losses which appeared in Q2 may continue into Q3. BDO plants faced huge operation pressure.

Supply of BDO was more apparently in surplus to demand compared with PTMEG. The competition pressure is expected to be big in 2020, meaning manufacturers may only near the cost line.

Import and export: export inched down but export plunged

According to the Customs statistics, imports of goods under Hs code 29053990 (including BDO) totaled 91kt in Jan-May, 2020, down by 7% on the year, and exports amounted to only 2,385mt, a huge decrease of 64% from the same period of last year. The production was affected for a long period amid the pandemic worldwide, and export of BDO and other diols sharply slipped. However, with recovering local demand from Mar, some suppliers turned to focus on domestic sales. Thus, imports only reduced slightly, while exports dramatically dropped.

2. PTMEG market review
Operation: capacity declined, O/R increased
There was no new PTMEG capacity in the first half of 2020. The project of Yanchang Petroleum was extended on the COVID-19 pandemic. The capacity of Shanxi Sanwei and HNEC, which have been offline for a long period, is temporarily deducted from the total PTMEG capacity. By the end of second quarter of 2020, domestic PTMEG capacity was estimated at 726kt, down by 9.9% on the year.

After eliminating the capacity of long-term shutdown units, operating rate of PTMEG market ascended, averaged at around 71% in H1 2020, up by around 6% y-o-y. Generally, the run rate of PTMEG market was high in Q1, largely around 80%, although it declined in mid-Feb as the production and delivery was affected in some companies due to restricted logistics. However, the operating rate started falling apparently from Q2 with increasing units suspending or cutting production. Some large units shut down for scheduled turnaround, greatly dragging down the run rate to 51%.

According to data from CCFGroup, the PTMEG production amounted to 264kt in H1 2020, down by 0.4% compared with the same period of last year. The run rate increased in H1 2020, but the overall capacity was revised down, ending up with flatting production on the year.

Tendency: cash flow was during the negative territory

Price of PTMEG averaged at 15,836yuan/mt in the first half of 2020, down by 7.9%. Falling price has become a common status on PTMEG market after 2014. With plunging BDO price, cash flow of PTMEG substantially rose in Q2 compared with Q1, while the overall losses on PTMEG market were still near 400yuan/mt in the first half of 2020. However, some companies managed to be near cost line with integrated industrial chain.

In recent years, PTMEG companies struggled around the cost line. The investment on PTMEG was obviously limited. Except for the project from Yanchang Petroleum, which was settled before, and the project from Guotai Xinhua, which has completed construction, there was no new investment in recent 2-3 years. 

Import and export: both decreased

According to the data from China Customs, imports and exports of PTMEG under Hs code 39072010 both slipped in Jan-May, 2020, with imports down by 20% on the year to 21kt and exports down by 23% y-o-y to 4.6kt. As a result, net imports were near 16kt, down by 4% compared with the same period of last year.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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