Coal Boiler Elimination Boosts China’s Alkylated Oil Profits

SCI99 Edit at: 2017-9-7 11:48:21
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Coal-fired boiler elimination and upgrade is one major part of the environmental protection supervision and inspection in 2017. According to plans of China’s Ministry of Environmental Protection, the massive use of coal-fired boilers shall be eliminated before October 2017.

China’s alkylation industry commonly uses coal-fired boiler as basic heating device in production. In Shandong, over 60% of alkylation companies are using coal-fired boilers. Therefore, from July to September, all those companies are requested to eliminate coal-based device and upgrade to gas-based or electric-based. Accordingly, the overall operating rate has dropped continuously from 66% in June to 33% in September in Shandong alkylation companies. The supply whittles away, and the alkylated oil price and profit surge in return.

According to the chart, we can see that China’s alkylation industry suffered long period of profit losses, and the annual averaged industrial gross profit in 2016 was only RMB 26/mt. However, the profit improved from July, and even skyrocketed up to RMB 500/mt several times within this period. The profit is generous but also ephemeral.

The value added tax of alkylated oil was reduced to 11% in July by the government, increasing the tax cost of the product. The upgrade of the boilers also increases the environmental protection cost. Together, the cost of alkylated oil will increase by RMB 100/mt or so as estimated. When those companies complete the upgrade and resume operation, the alkylated oil supply deficit will be alleviated quickly. Together with the firm C4 raffinate II price and all the cost increases mentioned above, it is predicted that the alkylation profit will crush and drop back into the negative interval soon in Q4 2017.

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