On October 8, the commencement ceremony of the 27/600000 ton/year propylene oxide/styrene (including ethylbenzene) unit (hereinafter referred to as "POSM unit") of Guangxi petrochemical refining and chemical integration transformation and upgrading project was held in Qinzhou port. It is understood that the POSM device of Guangxi Petrochemical Project is the first similar device independently designed, purchased and constructed by PetroChina. The device is an important part of Guangxi Petrochemical transformation and upgrading project, which improves downstream products, enriches the industrial chain, and is also representative of the overall implementation of the project. POSM unit has a scale of 270000 tons/year of propylene oxide and 600000 tons/year of styrene, with a total area of 151435 square meters. It consists of ethylbenzene, peroxidation, epoxidation, PO refining, phenylethanol dehydration, styrene refining, hydrogenation, environmental protection, public works and auxiliary facilities, furnace area, unit tank area, field cabinet room, unit substation and other units.

In the past five years, the capacity utilization rate of propylene oxide in China has mostly remained above 80%. However, starting from 2020, the pace of production capacity delivery began to accelerate, which also led to a decline in import dependence. It is expected that in the future, with the launch of new production capacity in China, propylene oxide will complete import substitution and may seek export.

According to data from Refinite and Bloomberg, as of the end of 2022, the global production capacity of propylene oxide is about 12.5 million tons, mainly concentrated in Northeast Asia, North America and Europe. Among them, China's production capacity reached 4.84 million tons, accounting for nearly 40%, ranking first in the world. It is estimated that between 2023 and 2025, the new capacity of global propylene oxide will be concentrated in China, with an average annual growth rate of more than 25%. By the end of 2025, China's total production capacity will be close to 10 million tons, accounting for more than 40% of global production capacity.

On the demand side, the downstream of China's propylene oxide is mainly used in the production of polyether polyols, accounting for more than 70%. However, polyether polyols have entered the situation of overcapacity, so more production needs to be digested through exports. We found a high correlation between the output of new energy vehicles and the retail and export value of furniture and the cumulative year-on-year apparent demand for propylene oxide. In August, furniture retail sales and cumulative output of new energy vehicles performed better, while cumulative furniture exports continued to decline year-on-year. Therefore, the better performance of domestic demand for furniture and new energy vehicles will still promote the demand for propylene oxide in the short term.

China's styrene industry has entered a mature stage, the degree of market liberalization is high, and there are no obvious barriers to entry. 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 growth rapidly. In 2022, the total domestic styrene production capacity reached 17.37 million tons, an increase of 3.09 million tons over the previous year. If the planned plant can be put into production on schedule, the total production capacity will reach 21.67 million tons, an increase of 4.3 million tons.

During the period from 2020 to 2022, China's styrene production was 10.07 million tons, 12.03 million tons, 13.88 million tons; imports were 2.83 million tons, 1.69 million tons, 1.14 million tons; exports were 27000 tons, 235000 tons, 563000 tons. Until 2022, China has been a net importer of styrene, but the domestic styrene self-sufficiency rate is as high as 96% in 2022. It is expected that in 2024 or 2025, imports and exports will reach a balance, when China will become a net exporter of styrene.

In terms of downstream consumption, styrene is mainly used in the production of products such as PS, EPS and ABS. Among them, PS, EPS and ABS consumption accounted for 24.6, 24.3 and 21%, respectively. However, PS and EPS have been underutilized for a long period of time, and new capacity has been limited in recent years. In contrast, ABS has seen steady growth in demand due to concentrated capacity distribution and considerable industry profits. In 2022, the domestic ABS production capacity is 5.57 million tons. In the next few years, domestic ABS plans to add about 5.16 million tons/year, reaching a total capacity of 9.36 million tons/year. With the commissioning of these new units, it is expected that the proportion of ABS consumption in the downstream consumption of styrene will gradually increase in the future. If the planned downstream production can be successfully achieved, ABS is expected to overtake EPS as the largest downstream product of styrene in 2024 or 2025.

However, the domestic EPS market is facing an oversupply situation, and the regional sales characteristics are obvious. Demand in the EPS market is under pressure due to the new coronary pneumonia epidemic, state regulation of the real estate market, the withdrawal of policy dividends in the home appliance market and the complex macro import and export environment. Nevertheless, due to the abundant styrene resources and the widespread demand for various quality goods, coupled with the relatively low industry access threshold, the new EPS production capacity continues to be launched. However, in the context of downstream demand growth is difficult to match, the domestic EPS industry "inner volume" phenomenon or will continue to upgrade.

As for the PS market, although the total production capacity reaches 7.24 million tons, in the next few years, PS plans to add about 2.41 million tons/year to reach a total production capacity of 9.65 million tons/year. However, in view of the poor efficiency of PS, it is expected that many new capacity will be difficult to put into production in time, and the downstream consumption downturn will further increase the pressure of oversupply.

In terms of trade flow, styrene from the United States, the Middle East, Europe and Southeast Asia went to Northeast Asia, India and South America in the past. However, in 2022, there will be some changes in trade flows, with the main export areas becoming the Middle East, North America and Southeast Asia, while the main inflow areas are Northeast Asia, India, Europe and South America. The Middle East is the world's largest exporter of styrene products, and its main export directions include Europe, Northeast Asia and India. North America is the world's second largest exporter of styrene products. Most U.S. sources are exported to Mexico and South America, and the rest are sent to Asia and Europe. Southeast Asia, Singapore, Indonesia, Malaysia and other countries also have a certain amount of styrene products output, mainly to Northeast Asia, South Asia and India and other regions. Northeast Asia is the world's largest styrene import area, and China and South Korea are the main importers. However, in the past two years, with the continuous high-speed expansion of China's styrene production capacity and the emergence of great changes in international inter-regional price differences, China's export growth increased significantly, reverse arbitrage to South Korea, China increased opportunities, ocean transportation also expanded to Europe, Turkey and other places. Despite the high demand for styrene in the South Asian and Indian markets, they are currently important importers of styrene products due to lack of ethylene resources and fewer styrene plants.

In the future, China's styrene industry will experience the process of competing with imports from South Korea and Japan for the domestic market, and then begin to compete with other sources of goods in markets outside mainland China. This will lead to a redistribution of global markets.