ASIAN PETROCHEMICAL MARKETS Markets have gone through considerable turbulence in the past six months following movements in crude oil prices and the ongoing macroeconomic issues in Europe. How does that affect the outlook for the second half of 2015 in Asia? AUGUST 2015 AN OUTLOOK FOR H2 2015 AROMATICS AND BLENDSTOCKS PX may weaken amid plant startups, slow polyester demand 2 Benzene to remain weak as supply increases further 4 SM movement hinges on China downstream demand 6 Isomer-MX to weaken on low Chinese demand, incremental supply 8 Toluene recovery likely to continue despite benzene weakness 9 MTBE outlook bearish as China likely to turn exporter 10 Methanol upswing hinges on demand from MTO producers in China 11 OLEFINS AND POLYMERS Ethylene seen rebounding from Sep 14 Propylene to face supply pressure from new plants 15 PE seen bearish on low demand, start-ups 17 PP margins likely to hold steady despite falling prices 18 Shaky China economy, lower down-stream run rates pressure MEG, PTA 19 Weak PVC outlook on flat demand, falling feedstocks 21 INTERMEDIATES AND CHLOR-ALKALI Oxo-alcohols mostly bearish amid oversupply in China 24 Caprolactam unlikely to continue rally amid volatile upstream 26 Outlook for ACN weak amid China supply glut 28 VAM prices seen set to rise as supply tightens 29 Caustic soda prices to retreat as demand fades in Q4 31
Transcript
ASIAN PETROCHEMICAL MARKETS
Markets have gone through considerable turbulence in the past six months following movements in crude oil prices and the ongoing macroeconomic issues in Europe. How does that affect the outlook for the second half of 2015 in Asia?
AUGUST 2015
AN OUTLOOK FOR H2 2015AROMATICS AND BLENDSTOCKSPX may weaken amid plant startups, slow polyester demand 2Benzene to remain weak as supply increases further 4SM movement hinges on China downstream demand 6Isomer-MX to weaken on low Chinese demand, incremental supply 8Toluene recovery likely to continue despite benzene weakness 9MTBE outlook bearish as China likely to turn exporter 10Methanol upswing hinges on demand from MTO producers in China 11
OLEFINS AND POLYMERSEthylene seen rebounding from Sep 14Propylene to face supply pressure from new plants 15PE seen bearish on low demand, start-ups 17PP margins likely to hold steady despite falling prices 18Shaky China economy, lower down-stream run rates pressure MEG, PTA 19Weak PVC outlook on flat demand, falling feedstocks 21
INTERMEDIATES AND CHLOR-ALKALIOxo-alcohols mostly bearish amid oversupply in China 24Caprolactam unlikely to continue rally amid volatile upstream 26Outlook for ACN weak amid China supply glut 28VAM prices seen set to rise as supply tightens 29Caustic soda prices to retreat as demand fades in Q4 31
2 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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PX-MX spread stays narrow, squeezing margins. China’s OX demand is seen to be shrinking and polyester demand could improve after SeptemberIn the second-half of this year, prices and margins for Asian paraxylene are expected to remain steady to weak, guided mostly by movements in crude, demand from downstream polyester and purified terephthalic acid markets, as well as new PX plants coming onstream during the period.
Although PX prices have fallen in line with crude since last year – the markers were assessed at $830.50/mt FOB Korea and $851.50/mt CFR Taiwan/China on July 28 – margins for integrated PX producers have remained relatively stable and mostly in profitable terrain in the first-half of this year, allowing them to run at high rates, while non-integrated producers faced tough times due to high feedstock costs.
Crude volatile, polyester seen steady to weakThe volatility in crude is likely to continue into the second-half amid continued uncertainty surrounding Greece’s position within the euro zone, and Iran’s historic nuclear deal with the
six major powers that has in effect enabled it to export oil again adding to an already oversupplied market.
“Brent is likely to hover between $50-$55/barrel for the rest of this year – it may flirt around the $60s/b, which I feel is the key and strong resistance. Polyesters should be stable, with decent demand, so I would say this factor is constant,” a trader said about the PX-polyester chain.
The PX-naphtha spread is likely to be between $320-$370/mt, he said. The spread was assessed at $350/mt on July 28 with PX at $830.50/mt FOB Korea and naphtha at $480.50/mt CFR Japan. Break even levels are “around $280/mt,” the trader said.
Another factor putting pressure on crude and polyester demand was China’s slower growth – expected to be about 7% in 2015, down from 7.4% in 2014.
While downstream PTA demand was seen supported through the first-half, with Asian polyethylene terephthalate and polyester makers enjoying positive margins from end-February to May, the seasonal lull in the PET sector from June to end-July/early August would crimp demand for feedstock PTA.
“Hopefully we will see some pickup for polyester demand in September for the winter season,” a source with a PTA producer said.
Plant start-ups may change the gameSeveral Asian PX plants, that are currently idled or shut, are likely to restart while some new plants are expected to come onstream during the second-half, potentially increasing supply and destabilizing margins.
In Singapore, Jurong Aromatics Corp. has targeted a restart of its 800,000 mt/year PX plant several times throughout the year, but the plant has not yet started production after shutting down in December last year. Platts last reported that the plant was targeted for restart in late July or August, but sources close to the company recently said September was a more likely month.
In China, Dragon Aromatics’ 1.6 million mt/year PX plant at Zhanghzhou remains shut and it is unclear when it may restart. It was shut following an explosion and fire on April 6.
Ningbo Zhongjin Petrochemical aims to start its new 1.6 million mt/year PX plant at Ningbo in August, Platts reported recently.
Lastly, India’s Reliance Industries Ltd. also aims to commission its new 2.2 million mt/year PX plant at Jamnagar in the fourth quarter, around the same time as the startup of its second 1.12 million mt/year PTA plant at Dahej, Gujarat.
PX-MX spread stays narrow, squeezing marginsThe spread between PX and feedstock isomer-grade mixed xylene has squeezed margins for non-integrated producers and there is no major improvement in this spread to be expected this year.
The spread was assessed at $104/mt on July 28 – with isomer-MX at $726.50/mt FOB Korea – well below an estimated break even level of $230/mt.
PX MAY wEAKEN AMID PLANT STARTUPS, SLOw POLYESTER DEMAND
PX – naphtha spread ($/mt)
Source: Platts
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The spread hovered at an average of $100.75/mt in first-half July, down from an average of $113.70/mt in June and $116.70/mt in May, Platts data showed. The spread has been narrowing gradually due to increased demand for isomer-MX as a gasoline blendstock during the summer driving season in the Northern Hemisphere.
Among the producers most affected by this narrow spread is South Korea’s Hyundai Cosmo Petrochemical, which has kept its 800,000 mt/year No. 2 PX plant shut since late April. However, the PX-MX spread is likely to widen some as the driving season comes to an end potentially allowing for a restart of HCPC’s No. 2 PX plant.
OX: illiquid spot market awaits JAC’s barrelsTaking a brief glance at orthoxylene – a side-product of PX and produced only by a handful of Asian PX plants – one of the key factors is the restart of Jurong Aromatics’ plant in Singapore, as it also has the capacity to make 200,000 mt/year of OX.
The OX spot market has been thin with hardly any deals heard as major supplier South Korea has not exported any cargoes this year. Producers there have been supplying to the domestic market instead and keeping low operating rates.
On the other hand, China is also importing less OX due to weak downstream demand for phthalic anhydride and dioctyl phthalate. China’s OX imports in the first five months of 2015 shrank 39.2% year on year to an average monthly import of 29,460 mt, down from 48,468 mt in the same period last year, Chinese customs data showed.
OX was last assessed at $799/mt CFR China on July 24, down $31/mt week on week.
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New plant start-ups will add to supply pressures. Chinese demand softens on weak downstream sector. The spread to downstream styrene is set to stay healthy.Asian benzene is expected to remain weak for the rest of 2015 as new production capacity starts up amid a persistently oversupplied market and weak Chinese demand.
China’s Ningbo Zhongjin for one, is expected to start up its Ningbo benzene-paraxylene plant, which can produce less than 200,000 mt/year of benzene, in August. In Southeast Asia, Singapore’s Jurong Aromatics Corp. was last heard targeting restart of its 400,000 mt/year benzene plant in the latter half of this year.
Last year, 1.84 million mt/year of new benzene capacity was brought online, which saw the regional benzene market buckle under the weight of oversupply.
In the first half this year, benchmark FOB Korea benzene marker rose 14% to $770.50/mt on June 30, lagging gains in feedstock naphtha prices, Platts data showed.
Benchmark Mean of Platts Japan naphtha price rose 17% to be assessed at $547.50/mt on June 30.
Meanwhile, import demand from Asia’s main buyer China, has been flagging since hitting a historical peak of 196,687 mt in March this year.
Chinese imports fell nearly 5% from March to 187,577 mt in April, and by 24% to 141,882 mt in May, Chinese customs data showed. While import statistics for June have yet to be published, the market expects the volume to fall as inventory levels remain high in East China.
Going forward, market sources expect Chinese demand to remain soft up till the end of 2015, with some downstream markets heard to be weak.
But some short-term upside can be found from the US Gulf Coast, where high operating rates of downstream styrene plants have re-opened the arbitrage window in mid-June. Market sources estimate 70,000-90,000 mt – including 40,000-50,000 mt of term volumes – are moving from Asia to the US Gulf Coast in July.
This trend is expected to extend into the third quarter this year, although expectations for the fourth quarter are mixed.
Some sources expect westbound demand to remain firmly supported by high downstream operating rates in the US Gulf Coast. One trader however, felt that the high arbitrage volumes to the US in the third quarter may result in a well-supplied market in the fourth quarter, hence tempering US Gulf Coast demand for Asian cargoes.
In the first half this year, another small pocket of demand for Asian benzene came from Europe, which was experiencing a period of tight supply.
This demand however, is not expected to continue into the second half this year as the supply constraints seen earlier was a short term issue, market sources said.
Downstream styrene spread to stay healthy, phenol spread weakDownstream styrene monomer margins for non-integrated producers are expected to remain healthy for the rest of the year, amid firm styrene demand and weak benzene prices.
The FOB Korea styrene monomer-benzene spread averaged $418.45/mt in the first half this year. Non-integrated styrene monomer producers typically target a spread wider than $250/mt for profitable production.
Styrene is expected to remain steady in H2 2015, with dynamics largely depending on how Chinese downstream demand fared, said sources.
The spread to benzene for another key downstream market, phenol, is expected to remain weak this year.
On average, the spread between the CFR China phenol and FOB Korea benzene price
BENzENE TO REMAIN wEAK AS SUPPLY INCREASES FURTHER
Asian benzene remains weak amid slow recovery ($/mt)
Source: Platts
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was $214.92/mt for the first half of this year – below a breakeven spread of $250/mt – and will likely stay in the red with the downstream phenol market under pressure from the supply glut.
In April 2015, Spain’s Cepsa Quimca started up its 250,000 mt/year phenol capacity in Shanghai. Before that, Taiwanese Formosa
Chemicals & Fibre Corp.’s Ningbo plant started initial operations at its 300,000 mt/year phenol unit in March. And last year, Shanghai Sinopec Mitsui Chemicals began operations at its phenol plant in Shanghai, which has a production capacity of 250,000 mt/year.
The weekly CFR China price of phenol was assessed at $915/mt on July 21,
while the breakeven cost was estimated at $1,040/mt, based on the daily FOB Korea benzene marker assessment of $790/mt on the same day.
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6 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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H1 turnarounds resulted in returning EPS demand. H2 expected to be weaker to steady amid mixed outlook. Demand for EPS, HIPS seen to be firmer but ABS, GPPS weak.Styrene monomer led the surge in Asian aromatics in the first-half of 2015 with the FOB Korea SM marker soaring 35% since the beginning of the year, but whether SM
will remain firm into the second-half is the question most market participants are asking now.
The other aromatics also rose during the first-half of the year – FOB Korea toluene and FOB Korea isomer-grade mixed xylenes were up 24% each from the January 2 assessments to $747.50/mt and $782/mt on June 30, respectively.
FOB Korea benzene was up 14% over the same period to be assessed at $770.50/mt on June 30, while FOB Korea paraxylene rose 7% from January 2 to $898/mt on June 30.
H1 rallyThe massive turnaround in South Korea and returning demand from the downstream expandable polystyrene market over March-May, triggered the surge in Asian SM in the first-half of 2015.
As many as seven out of eight SM plants in South Korea – accounting for around 76% of the country’s total SM production capacity – were shut for maintenance over March-May.
South Korea supplied around 40% of China’s SM imports in 2014, according to Chinese customs data.
Unprecedented low SM inventory in East China also boosted the Asian SM market, with the stocks hitting a 74-month low of 29,000 mt on June 26, data showed. East China’s SM inventory in June averaged 32,250 mt, down 70.39% from a four-year average of 108,923 mt.
Tight supply of US-origin SM into Asia supported prices further, with the US-Asia SM arbitrage seen shut for most of first-half 2015. A bullish European SM market due to tight supply amid turnarounds and unexpected outages in the Middle East lured US cargoes to Europe, said sources.
weak to steady outlook for H2For the rest of the year the outlook was weak to steady, with dynamics largely depending on how Chinese downstream demand fared in the latter part of the year, said sources in July.
SM prices had already started falling in June, with the FOB Korea SM marker plunging 64.7% from an intra-month high of $1,360.50/mt reached June 12 to $1,272.50/mt assessed on June 30, data showed.
Easing supply tightness with the South Korean turnaround season coming to an end as well
SM rallied the most in all aromatics in H1 2015 ($/mt)
Source: Platts
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Monthly average of SM inventory in East China (’000 mt)
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as an increase in US-origin SM cargoes into Asia are seen to weaken the Asian SM market in the third quarter, sources said in July.
According to Platts data, the FOB Korea-FOB US Gulf Coast was assessed at $76.69/mt on June 10, which is above the freight cost from the USGC to South Korea at $59.50/mt on the date. On June 30, the spread was at $65.81/mt, still above freight cost of $59.50/mt for the day.
Further pressure on the Asian SM market is expected from rising production amid a bullish ethylene/benzene-fed SM production margin, or EBSM.
The EBSM was estimated to be $103/mt and the SM/benzene spread at $502/mt on June 30. While the EBSM margin has dropped from a historical high of $312.60/mt FOB Korea reached May 15 – the SM/benzene spread was at $704/m on May 15 – margins were still positive for producers. Typically the producers need the SM/benzene spread to be above $250/mt to break even.
China downstream demand mixedDownstream demand from China is seen to be mixed in the second half of the year.
Typically, around 31% of Asia’s total SM demand comes from the expandable polystyrene market in China, followed by acrylonitrile-butadiene-styrene (25%), and general-purpose polystyrene and high-impact polystyrene (18%), said market sources in July.
China’s EPS demand was seen to be strong. “Downstream EPS demand in China will be even better in the third-quarter [typical seasonal peak], which may keep the SM price at a high level,” a market source said. “Another turnaround season in Asia in Autumn [September-November], and continuous low inventory in China are also likely to keep Asian SM firm,” a Japan-based trader said in July. Demand for HIPS is also expected to remain strong in the second-half.
China’s HIPS imports in May rose 19.6% from the same period last year and were
30% higher than the five-year average for May. This was partly due to higher output of air-conditioners in May – output rose 7.5% year on year to 16.7 million units, according to data from China’s National Bureau of Statistics.
But demand for the other downstream products – GPPS and ABS – were seen weaker with their imports in May down 22.4% and 14% from the five-year average at 62,024 mt and 138,518 mt, respectively.
GPPS is used to make disposable cups and parts for electronic goods and ABS is used to make car parts and television sets. China’s color television output in May fell 2.7% from the same period last year, to 11.8 million sets and car output tumbled 15% over the same period to 910,000 units, according to NBS.
weak outlook for China economyTight credit availability in China was another concern for the Asian aromatics markets for the second-half of this year.
The Shanghai Interbank Offered Rate has been rising since early this year and is likely to curb buying capacity of consumers and pressure down commodity markets, said sources in July.
A slowdown in China’s GDP growth rate and a lower purchasing manager’s index also indicate a weaker manufacturing sector and hence lower consumption of the SM derivatives.
China’s economy recorded its lowest growth in 24 years in 2014, with its GDP expanding at 7.4% amid a sluggish domestic market and fluctuating exports, and it is likely slow further this year.
China’s Purchasing Manager’s Index stood at 49.4 in June, according to HSBC. It was a touch above May’s 49.2, but still below the 50-mark, which indicates that China’s vast manufacturing sector was still contracting.
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China’s isomer-MX imports are set to fall. Recovery of the PX-MX spread is uncertain. And solvent-MX demand aligns more closely to isomer-MX
Asia’s isomer-grade mixed xylenes market is expected to fall under pressure in the second half of the year, as import demand from key buyer China is set to decrease with incremental supply amid lower downstream runs.
Chinese spot demand has already started showing signs of strain, as buyers increasingly shifted towards domestic supply as local isomer-MX prices have fallen below international levels on lower downstream demand.
Latest South Korean customs data showed isomer-MX exports to China fell for the first
time this year to 26,710 mt in June, or down 54.2% from a peak of 58,372 mt in May.
The downtrend is expected to continue into the second half of the year, as the economic growth slowdown is seen capping demand from China’s downstream paraxylene and purified terephthalic acid sectors.
“In the second half of the year, you will definitely see a drop in the exports to China as demand there tapers off,” a trader said.
Adding to this, China has seen an increase in isomer-MX supply, further curbing the country’s appetite for imports.
West Pacific Petrochemical Co. Ltd., or WEPEC, which restarted a MX unit following
the startup of a new 1.5 million mt/year continuous catalytic reformer at its plant in Dalian in June, will supply 20,000 mt/month of isomer-MX on a term basis for the rest of 2015 to neighboring PX maker Fujia Dahua.
This will reduce Fujia Dahua’s spot buying from the domestic market, freeing up volumes to other PX producers and displacing imports in the process, according to a source close to the PX producer.
On July 13, China Petroleum and Chemical Corp., or Sinopec, was offering isomer-MX at its four subsidiaries in East China – Sinopec Zhenhai, Sinopec Nanjing, Sinopec Jiujiang and Yangzi-BASF – at an ex-works price of Yuan 5,600/mt, or approximately $742.14/mt on an import parity basis. The isomer-MX CFR Taiwan marker was assessed at $765/mt the same day.
Regional supply meanwhile, is expected to rise back up to its usual level in the fourth quarter with the end of summer gasoline blending season in the Northern Hemisphere, which would see more isomer-MX diverted back to petrochemical production.
Trade sources added that while the supply situation is currently tight for July and August, this will ease off once Japanese isomer-MX producer Taiyo Oil restarts the transalkylation unit at its Kikuma aromatics plant, which can produce 700,000 mt/year of isomer-MX.
The unit has been shut since July 10 for a 40-day scheduled maintenance. Further out, only fellow Japanese producer Cosmo Oil is due to shut its Yokkaichi aromatics plant in October for a month-long maintenance.
Recovery of PX-MX spread likely to be slowBut even with lower Chinese demand acting as downward pressure on the region’s isomer-MX market, the spread between PX and isomer-MX is unlikely to widen back to breakeven level in the absence of a surge in demand for PX from downstream PTA manufacturers in China, Taiwan and South
Spread between PX and isomer-MX FOB Korea markers ($/mt)
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ISOMER-MX TO wEAKEN ON LOw CHINESE DEMAND, INCREMENTAL SUPPLY
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Korea, as plants there are operating at reduced rates, according to market sources.
The spread between FOB Korea PX and isomer-MX markers was assessed at $103.50/mt on July 21 – well below the breakeven level of $180-$230/mt that most non-integrated producers target. South Korea’s Hyundai Cosmo Petrochemical for one, is said to be waiting for the PX/isomer-MX spread to return to a more profitable level before restarting its No. 2 plant in Daesan. The plant, which has a nameplate production capacity of 800,000 mt/year PX, has been shut since late April.
Solvent-MX looks to isomer-MX for directionDemand in the solvent-MX market, which has remained mixed for most of
the year so far, is likely to taper off as winter approaches.
The paint and solvents industry, which uses solvent-MX in the manufacture of paints, resins and polishes, sees the most sales during the spring and summer months.
“The volume of solvent-MX we import and sell decreases by almost 50% in the second half of the year, when demand in China starts to dry up as winter nears,” said a Chinese trader.
So far this year, solvent-MX demand has fluctuated, in tandem with changes in the upstream crude market and the spread between solvent-MX and isomer-MX prices.
“Since [China’s] hike in import duty ... to 7% this year, Chinese traders and end-users have followed the movement in isomer-MX prices very closely to see if the spread between the two will shrink enough for them to buy isomer-MX as a substitute,” said a trader based in Singapore.
A South Korean producer indicated that most end-users look for a spread of at least $60-$70/mt between the two products, below which they may prefer to purchase isomer-MX as a replacement.
The spread between the FOB Korea isomer-MX and solvent-MX markers was last assessed at $79/mt on July 16.
Gasoline blending demand will support toluene prices. New benzene capacities may aid recovery. Chinese demand is an indicator of toluene prices for H2.Asian toluene prices may continue to rally to September driven by firm need for gasoline
blending in Asia despite weaker downstream benzene demand.
The FOB Korea toluene marker rose almost 25% in H1, from $602/mt on January 2 to $751/mt on July 2, on higher demand for gasoline blending in May and June as blenders stocked up ahead of the traditional
driving season in the summer months of July to September.
The end of the gasoline blending season in September may weigh on demand for toluene, however, and exert downward pressure on prices in the last quarter of the year unless the benzene market improves, a seller source said.
New benzene capacities scheduled to come on stream in H2 may help support toluene prices. China’s Ningbo Zhongjin plans to startup its 200,000 mt/ year benzene-paraxylene plant and Singapore’s Jurong Aromatics Corp. plans to restart its 400,000 mt/year benzene plant in H2. However, the ample supply of benzene may narrow the benzene/toluene price spread, which stood at $36.50/mt on July 16, compared with $71.50/mt on January 2, below the $100-120/mt breakeven level.
South Korea’s supply of toluene is expected to remain tight till the end of the year supporting firmer export prices. The
TOLUENE RECOvERY LIKELY TO CONTINUE DESPITE BENzENE wEAKNESS
Toluene FOB Korea marker ($/mt)
Source: Platts
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There is little blending demand from China. China is set to start exporting MTBE. And SEA gasoline demand is tapering off.
Asian MTBE will stay under pressure in the second half of the year on regional oversupply and low demand, industry sources said. Supply is expected to outpace regional consumption as economic growth slows across the region, they added.
Spot requirements from key MTBE importer China had initially increased toward the end of H1 on the expectation of a boost in demand due to the summer driving season.
However, the expected demand did not materialize fully as blending activity took a hit after the Chinese government adjusted its retail gasoline prices in June and July on lower crude futures, causing a supply glut of MTBE in the domestic market.
According to a source, import volumes into China hit a peak in April at around 55,000 mt, but fell 40% to 33,000 mt in May. While import statistics for June are yet to be published, sources said they expected the volume to decrease further as domestic supply had increased over the same period after local producers ramped up run rates in anticipation of the summer driving season.
Furthermore, additional MTBE production capacity is set to come on stream in the third quarter. As anticipated, Yantai Wanhua started trial runs at its 820,000 mt/year MTBE plant located in Shandong in mid-July. The company plans to export approximately 100,000-200,000 mt of MTBE a year, keeping the rest for domestic consumption.
As supply increases, China is expected to become an exporter of MTBE in H2. Some producers have already started offering China-origin MTBE to Southeast Asia and South Korea. Some China-origin cargoes were also heard to have been offered to the US.
More sellers are also expected to emerge in the Asia-Pacific region. South Korea, which has been a balanced market for MTBE, may begin exporting as domestic consumption falls due to a slowing economy. In addition, an influx of cargoes into Asia is possible later in the year as sanctions on Iran are progressively lifted.
Supply glutGasoline demand in Southeast Asia is likely to fall from the highs seen in July and remain stable for the rest of the year, a gasoline blender said. As a result, demand for MTBE in Asia will also fall.
While the Asian gasoline market will be supported by short-term Western demand,
Gasoline leads the downward movement in Q3 ($/barrel)
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bulk of the supply will be used to meet domestic demand at the 1 million mt/year Ulsan PX plant owned by SK Energy and JX Nippon Oil and Energy. The plant uses toluene disproportionation technology to produce PX. South Korea exported 27,587 mt of toluene in June, down 17.5% from May and 44.5% from a year earlier, according to customs data.
China, which imports most of its toluene from South Korea, is likely to remain a key
indicator of toluene prices in H2. Chinese demand for South Korean toluene weakened lately amid a supply glut as gasoline blending activity in China weakened, a Chinese trader said.
The gap between FOB Korea and CFR China barges averaged $25-30/mt for most of July, Platts data showed. “This spread is workable and would continue to encourage exports to China but if the price gap drops below $20/mt, it might
not be feasible for South Korean exporters,” a Chinese trader said.
Buyers in China remained cautious amid an economic slowdown. China’s total imports of toluene in May were down 63.6% from April at 23,795 mt, according to General Administration of Customs data.
MTBE OUTLOOK BEARISH AS CHINA LIKELY TO TURN EXPORTER
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this is unlikely to provide any support to the Asian MTBE market as it is not a gasoline additive in the US.
Hopes now lie on gasoline demand from other countries such as India and Africa. Blenders in Asia have set their sights on gasoline demand in these countries to offset the supply overhang. Apart from gasoline blending, MTBE is also used as a feedstock for chemical production.
Downstream methyl methacrylate producers in Asia were hit by plunging prices in H1 as demand slumped. Although prices are likely to have bottomed out, recovery was expected to be slow amid a surplus in the market, an industry source said.
He added that it was unlikely that any of the downstream chemical end-users, MMA or rubber, will be able to provide
support to the MTBE spot market this year amid the economic slowdown.
MMA constitutes less than 10% of the entire demand for MTBE, and producers require 1.5-1.6 mt of MTBE to produce 1 mt of MMA.
Lower ethylene prices in Q3 will dampen MTO run rates. Downstream formaldehyde and DME demand to pick up in H2. Iran is to re-focus on North Asia post sanctions.Demand from methanol-to-olefins producers and the lifting of sanctions on Iran are the two major factors that will set the direction the Asian methanol market – especially the China market – takes in the second half of this year.
Demand for methanol from Chinese methanol-to-olefins (MTO) producers is expected to lose steam during the third quarter as downstream ethylene prices are starting to ease.
The high ethylene price in the first-half was the main driver for MTO plants in China to ramp up rates, and in turn support demand for spot methanol cargoes.
The CFR Northeast Asia ethylene price had climbed to an eight-month high of $1,420/mt CFR Northeast Asia on June 10, while the premium of ethylene over naphtha hit a nine-year high of $876.63/mt on April 22, data showed.
But in the third quarter prices have started to ease amid North Asian steam crackers resuming operations post turnarounds and negative margins for most ethylene derivatives.
As a result, the CFR Northeast Asia ethylene marker was assessed at a four-month low of $1,170/mt on July 21, Platts data showed.
However, with the second round of turnarounds beginning from September, ethylene prices are expected to recover ground in the fourth quarter, which in turn could make it attractive for MTO producers to ramp up production.
Impact of mto demand on pricesOf the total Chinese methanol demand, around 10% is coming from MTO producers now, up from around 5% in 2014, according to sources mid-July.
While Chinese MTO producers do import spot methanol cargoes, they have been increasingly turning to the cheaper local grade – methanol with more impurities – as quality was not of utmost concern. As such, the new MTO plants in China were supporting domestic methanol prices and production of methanol in China.
Reflecting the strong relationship between MTO demand from China and methanol prices in Asia in the first-half of this year, Platts data showed the CFR China methanol surged $67/mt, or 27.5% from beginning of the year to be assessed at $311/mt CFR China on June 30.
METHANOL UPSwINg HINgES ON DEMAND FROM MTO PRODUCERS IN CHINA
Gap between China and US/EU narrowing on firm demand ($/mt)
12 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
AROMATICS AND BLENDSTOCKS
In comparison, over the same period the US methanol price had risen by $13.33/mt or 3.17% to $373.30/mt FOB US Gulf Coast, and in Europe prices had fallen by $18.87/mt or 5.3% to $336.40/mt FOB ARA.
Front-month ICE Brent closed in Singapore at $62.27/barrel on June 30, up $4.56/b or 7.9% from the start of the year.
Demand from China’s fast-growing MTO producers has taken centerstage this year, and is being regarded as the main driver for the methanol market now.
By the end of 2015, a total of 1.83 million mt/year of MTO production capacity will be brought on line in China, which could see potential demand for methanol increase by 5.5 million mt/year.
In 2014, a total of 1.1 million mt/year of MTO production capacity was brought online in China, consuming around 3.3 million mt/year of methanol.
Over the next five years, China – the only Asian country to have any MTO plants – will continue to expand its MTO capacity amid its insatiable demand for polymers.
Downstream formaldehyde, DME demand to rebound H2While demand from MTO producers in China was the main driver for the Asian methanol market this year, market share of the two main downstream products – formaldehyde and dimethyl ether or DME – remain higher at around 25-30% and 15-20%, respectively, said sources mid-July.
Demand from the formaldehyde market typically picks up after the hot and humid summer in China from plywood producers, which would be from September to October onwards. And this year would be no exception, sources said mid-July.
Plywood producers often trim down output from June to August to cope with the heat
and humidity. The plywood and furniture industry uses huge amounts of formaldehyde-based glues.
The other methanol derivative DME, will also see demand increase with cooler weather. But DME demand also depends on LPG prices as DME is typically produced to be blended into LPG when it becomes profitable to do so.
LPG demand in China typically gets a boost with cooler winter weather in tandem with increasing energy needs for heating and cooking, for which LPG is widely used in the country.
Iran may try to regain lost territory in North Asia, SEAOn the supply side, Iran resuming its exports will have a major impact on the Asian methanol market in the second-half, market sources said mid-July.
South Korea and Japan, where market share of Iranian methanol had been wiped out after sanctions were imposed, will see the most impact.
In 2010, Iran had exported 363,214 mt of methanol to South Korea, but this had been reduced to zero by 2014, data from Korea Customs Service showed.
The same goes for Japan, where methanol imports from Iran fell from 227,174 mt in 2010 to zero in 2014, data
from Japan’s Ministry of Finance showed.
Iran’s major buyers have been China and India during the sanctions period, as Iran could not sell anywhere else.
As such, India’s imports of Iranian methanol surged from 336,207 mt in 2010, to 1,079,521 mt in 2014, data from India’s Ministry of Commerce showed.
As a percentage of India’s total methanol imports, Iran’s share jumped from 39% in 2010, to a whopping 76% in 2014, the data showed.
For China, imports of methanol from Iran fell from 2.154 million mt in 2010 to 1.631 million mt in 2014, down 24.3%, data from China CustomsStatistics Information Center showed. However, the percentage of Iran-origin methanol in China’s total import volume was relatively stable, falling from 42% in 2010 to 38% in 2014.
But after sanctions are lifted, Iran could refocus on lost markets and not be forced to sell its methanol into India and China where prices are often lower there compared with other markets.
H1 2015: Iran’s share in China’s methanol imports steady at 40% (million mt)
Source: Platts
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13ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
AROMATICS AND BLENDSTOCKS
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14 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
The Asian ethylene market is likely to rebound from September, with spot supplies forecast to turn tight again as the second round of the steam cracker turnarounds kicks off, market sources said.The Asian ethylene market is currently under pressure as spot demand quickly fades amid negative margins for most ethylene derivatives, while supplies rise. Ethylene supplies are expected to increase as the first round of steam cracker turnarounds ended late July. As a result, the CFR Northeast Asia ethylene price on July 21 dropped $10/mt on the day to be assessed at a four-month low of $1,170/mt, according to Platts data.
LPG cracking also increased ethylene production in the region. Most steam cracker operators in Asia started using LPG for their steam crackers from the second quarter as the ethylene market turned bullish in the first half.
LPG has a higher ethylene production yield than naphtha. According to market sources, the production yield is around 0.36-0.40 with LPG compared with 0.23 for naphtha.
Ethylene bullish in h1 2015At the beginning of the year the Asian ethylene market was mostly bullish, driven by tight supplies amid heavy steam cracker
turnarounds as well as unplanned outages. The CFR Northeast Asia ethylene price climbed to an eight month high of $1,420/mt CFR Northeast Asia on June 10, while the premium of ethylene over naphtha hit a nine-year high of $876.63/mt on April 22.
Limited natural gas availability in Southeast Asia and the Middle East also pushed down ethylene production in the two regions, which also consequently reduced ethylene exports.
Supply tightness should return around September as the second round of steam cracker turnarounds starts, market sources said.
In Southeast Asia, Indonesia’s Chandra Asri plans to shut its 600,000 mt/year steam cracker from September. In South Korea, Lotte will shut its 1 million mt/year steam cracker in Daesan for October-November.
Steam cracker operators are slowly switching back to naphtha cracking from LPG amid a weak naphtha market, which would reduce the ethylene production yield. Taiwan’s Formosa plans to reduce LPG cracking to 5% of its feedstock supply from August, compared with 10% currently, as naphtha prices fall.
The company has three naphtha-fed steam crackers in Mailiao with a
combined ethylene production capacity of 2.93 million mt/year.
The price of LPG typically moves higher in the fourth quarter in Northeast Asia as LPG is used for heating purposes in the region.
“I think the ethylene market will likely remain weak in August but is likely to rebound again after discussions for September arrival start,” a trading source said.
Ethylene margins to remain strongMarket participants also expect the Asian ethylene margin to remain strong in the second half of the year amid rebounding ethylene and weak naphtha.
The recent decline in the Asian ethylene market slashed the ethylene’s premium to naphtha. As of July 21, the spread was calculated at $664.75/mt, plunging $211.88/mt from the nine-year high on April 22 but still higher than a typical break-even spread of $300-350/mt.
Market participants are also expecting fresh ethylene demand in Northeast Asia in the second half, in line with planned startups of new derivatives plants in China, such as monoethylene glycol.
Butadiene sentiment seen similarThe H2 2015 outlook for Asian butadiene is similar to that of ethylene, with butadiene likely to rebound from September, market sources said.
But the rebound is likely to be limited due to negative margins in the downstream market, notably styrene-butadiene-rubber.
CFR China butadiene was assessed on July 21 at a two-month low of $1,115/mt. Market participants expect the Asian butadiene market to fall further amid quickly falling butadiene demand due to reduced synthetic rubber plant operations.
Asian SBR producers have been suffering from negative margins since the beginning
ETHYLENE SEEN REBOUNDINg FROM SEP
Ethylene-naphtha spread ($/mt)
Source: Platts
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15ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
of the year, hit by high butadiene costs. The spread between SBR and butadiene hit a record low of $165/mt on June 12, far below a typical break-even spread of $550-600/mt. The spread rebounded from June but is still below breakeven.
“I think the Asian butadiene market would rebound from September in line with the steam cracker turnaround season,” a market source said. “But such a rebound may be limited because of the negative SBR margin.”
In addition, naphtha cracking would increase butadiene production, market sources said.
The butadiene production yield is 0.01-0.03 with LPG compared with 0.04 with naphtha.
“I am rather pessimistic about the butadiene market,” a steam cracker operator in Northeast Asia said. “But I am not too much worried about ethylene and it would maintain good margins for steam cracker operators.”
Asian propylene is likely to see pressure from increasing supply in the second half of the year on new startups and fewer plants shut for planned maintenance.In the first half of the year, CFR China propylene surged 40.3% to hit $1,010/mt on June 30 as crude oil and naphtha
prices rebounded following the steep plunge at the end of 2014. Propylene prices were also supported by tighter supply due to plant shutdowns, and firmer spreads with naphtha as well as polypropylene.
A series of shutdowns – both planned and unplanned – tightened propylene
supply in Asia in H1. In Northeast Asia, at least nine plants with a total propylene production capacity of 3.46 million mt/year were shut at different periods in H1, offsetting additional supply from new startups including China-based Oriental Energy’s 600,000 mt/year propane dehydrogenation unit at Zhangjiagang that began operating at the end of May.
While more plants will be shut in H2, the combined supply loss is expected to be less than that seen in H1. At least five plants with a combined production capacity of 1.43 million mt/year are expected to shut at various periods in H2.
Furthermore, the decrease in supply is also expected to be offset slightly with the startup of some new plants with a total production capacity of at least 1.19 million mt/year.
In South Korea, Hyosung Corp. plans to run its new 300,000 mt/year PDH plant at Ulsan at full capacity by the end of August, while YNCC plans to start
PROPYLENE TO FACE SUPPLY PRESSURE FROM NEw PLANTS
Asia PP Raffia-propylene spread firm in H1 2015 ($/mt)
1800PP Raffia CFR FE AsiaPropylene Poly Grade CFR ChinaSpread (left)
16 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
commercial production at its new olefins conversion unit in Yeosu on September 1. The unit can produce 140,000 mt/year of propylene.
In China, Yantai Wanhua Chemicals’ new PDH plant in Shandong, which can produce 750,000 mt/year of propylene, started up in July.
Meanwhile, Taiwan’s Formosa will shut its No. 1 RFCC, which can make 375,000 mt/year of propylene, in July for maintenance. Also in Taiwan, CPC will shut its No. 4 naphtha-fed steam cracker, which can make 193,000 mt/year of propylene, in Linyuan from mid-November.
South Korea’s Lotte Chemical will shut its Daesan naphtha-fed steam cracker, which can produce 500,000 mt/year of propylene, between October and November for annual maintenance, while Thailand’s PTT Global Chemical plans to shut two of its four steam crackers in Map Ta Phut during the third quarter for annual maintenance. The two steam crackers, I4-1 and I4-2 can produce 310,000 mt/year and 50,000 mt/year of propylene respectively.
Propylene-polypropylene spread widest since 2012The spread between propylene and its key downstream market, polypropylene, is at its widest since the CFR China propylene price
was first assessed on July 16, 2012. The spread between CFR China propylene and CFR Far East Asia raffia grade PP averaged below $60/mt over end-2012 to 2013. This almost doubled in 2014 to $115.80/mt. In H1 this year, the spread averaged $191.33/mt, significantly above the typical breakeven cost of $150/mt.
The spread between FOB Korea propylene and Mean of Platts Japan naphtha averaged $384.31/mt in H1, above the estimated $250/mt conversion cost for propylene from naphtha.
Beyond demand and supply fundamentals, the global economic situation, including
OPaL (2)Complete: late 2015/ H1 2016HDPE/LLDPE: 360,000 mt
GailComplete: late 2015/ H1 2016HDPE/LLDPE: 400,000 mt
P.T. Pertamina Complete: 2020HDPE: 300,000 mt
PTT Debottlenecking Complete: 2018LDPE ex52
P.T. Pertamina Complete: 2020LDPE: 200,000 mt
BCPLComplete: late 2015/ H1 2016HDPE/LLDPE: 200,000 mt
Pata
Lepetkata
DahejJamnagar
Map Ta Phut
Pangerang
Merak
Daesan
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Source: Platts
17ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
Prices of Asian polyethylene are likely to fall in the second half of the year on weak demand and new start-ups, industry sources say.
Economic uncertainty, new supplies in India and China and lower run rates across downstream plastic converters were cited as the reasons for the price fall.
China, the key polyethylene market, has lowered its growth target for gross domestic product to around 7% for 2015 compared with growth of 7.4% in 2014.
The main applications for polyethylene are consumer-led, such as plastic bags, bottle caps, stretch films, and consumption tends to follow GDP, market participants said.
PE prices fell in February to a low of around $1,050-$1,100/mt CFR FE Asia across the various grades due to the Chinese New
Year holiday lull and then increased during the traditional March-April peak manufacturing season.
PE prices remained around $1,350-$1,450/mt CFR FE Asia after the peak season due to tight feedstock ethylene supply, according to market sources.
Polyethylene prices only started falling in June when ethylene supplies eased.
Domestic Chinese prices, particularly for linear low density polyethylene were on par with imports but have recently fallen below them because of dwindling demand. On 21 July, the import parity of local LLDPE parcels in east China worked out to be around $1,225/mt CFR China, which was below import prices at $1,255/mt CFR China, according to Platts.
In addition, the current ethylene-PE margins seen at $200-$500/mt until July
will likely decrease, market sources said. New capacity coming online in India and China could lead to oversupply pushing prices down.
The total increase of polyethylene capacity in Asia in the second half of the year will be around 1.2 million mt/year for high density polyethylene, 2.3 mil mt/year for LLDPE, and 630,000 mt/year for low density polyethylene.
The Asian PE production margin dropped to as low as $205/mt on February 26 and hit a year-to-date high of $507/mt on July 14, Platts data showed.
The PE-contract ethylene margins are calculated by multiplying the naphtha price in Japan by a conversion of 1.4 and adding an estimated $150/mt in production costs.
Dalian futures are also showing lower prices for forward months. LLDPE January futures closed at Yuan 8,800/mt ex-warehouse on July 21, which was lower than the domestic prices of Yuan 9,200-9,400/mt ex-warehouse.
Dollar strength and the Iranian nuclear deal should keep commodity prices capped, market participants said.
High odds of a US interest-rate increase by September would also dampen demand for dollar-denominated commodities, they added.
issues in Greece and Iran, could also impact propylene, either directly or indirectly.
Should supply outpace demand, producers might need to cut operating rates, a source
based in Japan said. A source with a producer in China said that the outlook for H2 would also hinge on the strength of demand in China, which, he added, was not clear as yet.
18 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
In the second half of 2015, polypropylene prices are expected to weaken due to softening demand, but PP-naphtha spreads are likely to remain steady for integrated plants as feedstock costs see a steeper drop, sources said.
“If Iran sanctions are lifted, then there is a good chance Iran will increase [crude oil production],” a China-based trader said, citing this as a reason for expecting naphtha to remain profitable for PP production in H2.
The PP-naphtha spread is especially relevant for integrated plants, which account for more than half of Asia’s PP capacity.
As of July 10, the PP-naphtha spread was $654/mt for Far East Asia and $695/mt for Southeast Asia, significantly above the $450/mt notional breakeven level. CFR South Asia polypropylene, which is predominantly India, saw a spread of above $800/mt after March when end-users saw their stocks depleting when Reliance Industries Limited’s Jamnagar plant was shut for maintenance.
The 1 million mt/year export-oriented plant was in maintenance from February 28 to April 20. As of July 10, the spread had narrowed to $730/mt.
CFR FEA PP fell to a five-year low of $965/mt on February 2, tracking the dramatic fall in Mean of Platts Japan naphtha prices.
MOPJ naphtha fell to a seven-year low of $398/mt FOB Japan on January 13. On February 3, the spread between PP raffia CFR China and MOPJ naphtha touched the notional breakeven level of $450/mt briefly before rebounding.
New cto startups, poor sentiment in ChinaIn China, coal-to-olefins integrated PP plants are the current price leaders due to coal being so much cheaper than naphtha. Platts Analytics estimated that olefins made via the coal-to-gas route enjoy a $200/mt advantage over that made from conventional naphtha.
As of July 15, China domestic PP raffia was about $51/mt cheaper on an import parity basis compared with CFR FE Asia assessment at $1,140/mt. Chinese end-users are opting for domestic PP instead of deep-sea cargoes due to attractive pricing combined with quick delivery.
Meanwhile, 3.5 million mt of PP capacity is expected to startup in 2015, of which 1.3 million mt of capacity came online in H1. Most of the new capacity is linked to CTO.
While the economics favor the CTO route, technical reliability issues and environmental concerns could delay or even derail some of the projects, sources said, adding that low operating rates was a major issue with CTO projects.
China’s estimated 2015 PP demand of 20.2 million mt represents 80% of the region’s requirement and 58% of total Asia demand. “We believe PP [demand in China] is growing still. We see a 5-6% growth is surely possible this year and in the years to come,” Borouge CEO Wims Roels said in an interview in May.
Demand would outstrip domestic production in the future, he added.
China’s short-term demand is, however, expected to be bleak in H2 due to
SE Asia PP-naphtha spread, integrated ($/mt)
Source: Platts
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PP MARgINS LIKELY TO HOLD STEADY DESPITE FALLINg PRICES
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Source: Platts
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19ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
Seasonal lull in the downstream PET and polyester markets crimps demand for PTA and MEG. Lower PET run rates are seen across Northeast Asian plants. Asian MEG and PTA futures plummet on China stock market turmoil.
Asian polyester and their feedstock markets rallied in the first-half of this year, but for
the second-half the outlook is weak amid shaky macroeconomics and lower run rates across polyethylene terephthalate and polyester plants in Northeast Asia.
Polyester and PET feedstock monoethylene glycol prices improved during the first-half amid lower ethylene costs and the shutdown of Sinopec’s 200,000 mt/year MEG facility at Nanjing, Jiangsu province, following an explosion on April 21.
For another polyester feedstock – purified terephthalic acid – prices remained under pressure in the first-quarter until the Dragon Aromatics plant explosion on April 6 which led to a sharp rebound in prices.
Meg margins positive in H1, seen weaker for H2Asian MEG margins flipped from negative seen in November to positive on December 3, 2014, following sharp declines in feedstock ethylene prices. While margins were trimmed once ethylene prices recovered from March, they remained positive through January-May 2015, Platts data showed.
deteriorating buying sentiment. On July 8, the Shanghai Composite index fell 6% day on day, the sharpest drop since 2007. Buyers fled the market, sending the CFR FE Asia PP raffia marker plunging $40/mt week on week to $1,150/mt.
Although the stock market has rebounded partially, traders said that headwinds appeared to be here to stay for H2. Asian PP producers will have to adjust their offers downward as the PP-naphtha spread remains wide, industry sources said.
Traders offloading CFR cargoes accumulated during Q2 will add to the supply overhang, pushing down PP prices in China, they added.
Supply overhang, seasonal fall in demand in IndiaOnly 450,000 mt/year of the expected 850,000 mt/year of PP nameplate capacity additions are likely to be realized in India in 2015, after the startup of the Mangalore Refinery and Petrochemicals plant in Q2.
“For South India this is the only plant, so most of the cargoes will go locally,” industry
sources said. Production from the plant has already led local producers to cut offers, traders said. Exports from the plant are not expected until next year.
PP prices in South Asia were likely to be weak in H2 in the wake of the plunge in demand center China that could lead to a supply glut in India, sources said. The seasonal lull in construction during the monsoon season from June to September would add to the weakness, they added.
In the long term, however, India is expected to lead PP demand growth in Asia. Platts Analytics data shows growth of 7.5% in 2014, which is expected to rise to 7.8% in 2015.
No addition to capacity in Southeast AsiaNo new capacity is expected to come online in 2015 or 2016 in Southeast Asia. In H2, PP demand in SEA is expected to be hit by weak China sentiment and the monsoon season.
PP demand had slowed to 4.6% in 2014 before gaining steam in 2015 with an estimated growth of 5.5%, according to Platts Analytics data. Long-term growth is expected to continue at a steady pace, reaching 5.8% in 2017, the data showed.
PP Raffia CFR S AsiaFeedstock naphtha C+F Japan CargoSpread (left)
SHAKY CHINA ECONOMY, LOwER DOwN-STREAM RUN RATES PRESSURE MEg, PTA
20 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
The MEG production margin is calculated by multiplying the ethylene price by a conversion of 0.6 and adding an estimated $150/mt in production costs.
On December 3, 2014, the Asian MEG production margin was calculated at plus $44/mt, with Asian ethylene assessed at $1,100/mt CFR Northeast Asia and Asian MEG at $854/mt CFR China, data showed.
But by May 15, the Asian MEG production margin had narrowed to plus $30/mt, with Asian ethylene assessed at $1,350/mt CFR Northeast Asia and Asian MEG, assessed at $990/mt CFR China.
“Asian MEG margins were under pressure from higher ethylene feedstock costs in 2014, but recovered when ethylene prices eased, and given high seasonal demand for PET and polyester from February through May, demand for feedstock MEG and PTA was strong,” said a senior executive with a Taiwanese petrochemical plant.
“The margins are now [under pressure due to] low seasonal demand for PET and polyester – and hence weaker buying interest in both MEG and PTA – and reduced PET and polyester operating rates across Northeast Asia,” he added.
Operating rates across several downstream Taiwanese and South Korean PET and polyester plants were heard to be around 80%-85%, while several Chinese producers
were heard to be operating at even lower rates of 75%-80%.
On July 10, the Asian MEG production margin was calculated at minus $15/mt with Asian ethylene assessed at $1,230/mt CFR Northeast Asia and Asian MEG assessed at $873/mt CFR China.
“MEG prices are likely to stay within a range of $850-$900/mt during the third quarter, with a potential upturn to $920-$930/mt in the fourth quarter,” he said.
“Also, with both MEG and PTA [prices increasingly guided by trading on exchange platforms], we must not ignore the impact of Chinese equity markets on prices of actively traded MEG and PTA futures on China’s Zhengzhou Commodity Exchange and Huaxicun Commodity Exchange,” said a Japan-based trader.
Sharp declines on the Shanghai Stock Exchange Composite Index, which dived 7.55% on June 26 and 5.77% on July 3, sent MEG and PTA futures plummeting.
On July 10, following various comprehensive measures by the Chinese government to arrest the meltdown, the index rallied to close up 4.54%, lifting MEG and PTA futures along, and stemming a potentially sharper decline in physical MEG spot prices.
Physical MEG prices tracked the tumultuous Shanghai/Shenzhen stock markets and
falling MEG futures, dropping $23/mt week on week on July 3. On July 10, the rally in stock markets limited the price fall at $42/mt week on week with the marker assessed at $873/mt CFR China.
PTA prices firm in H1 amid capacity trim, but H2 seen lowerAsian PTA prices remained under pressure in the first-quarter, with prices on February 11 falling below a five-year low, to be assessed at $586/mt CFR China.
The start-up of mega worldscale plants in China – each over 1 million mt/year capacity – between 2009 and 2013, created an oversupply of PTA in the Asian market leading to price declines and negative margins throughout 2014.
To sustain price stability this year, PTA producers in Taiwan, South Korea and China are running their plants at reduced rates.
While Asian PTA prices lingered in the low-$600s/mt CFR China from February through March, the Dragon Aromatics plant explosion on April 6 allowed Asian PTA prices to finally recover from the past year’s slump.
On April 6, an explosion and fire at Dragon Aromatics in Zhangzhou, led to an outage of its paraxylene plant. This in turn led Xianglu Petrochemical to shut its 4.5 million mt/year PTA plant as it gets most of its PX feedstock from the Dragon Aromatics plant.
Following the shutdown, Asian PTA prices climbed 4% day on day to be assessed at $635/mt CFR China on April 7.
Besides the Dragon Aromatics incident, PTA production in China had been already substantially reduced, by 9.35 million mt or 21% to 34.33 million mt, due to a combination of poor economics, PX feedstock shortage and financial difficulties.
As such, PTA prices had surged $130/mt or 21.3% from April 6 to be assessed at
Asian polyethylene terephthalate margins narrow in late Q2 ($/mt)
Source: Platts
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21ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
$740/mt CFR China on April 23, data showed. Through to June, PTA prices remained firm ranging between $690/mt and $750/mt CFR China. But in recent weeks, PTA prices were seen lower due to a seasonal lull in the downstream PET and polyester markets.
“Asian PTA prices are under pressure due to rising domestic Chinese PTA inventory, despite efforts by producers to manage inventory levels through rate cuts,” said a China-based PTA producer.
Asia PTA prices have corrected down since June, falling from $730/mt CFR China on June 5 to be assessed at $660/mt CFR China July 10, data showed.
“PTA prices are likely to stay within a range of $650-$700/mt during the third quarter, and may get a boost to over $750/mt should PET and polyester demand pick up significantly in the fourth-quarter,” he added.
“Also, the recent turmoil in the Shanghai and Shenzhen stock exchanges has triggered PTA futures to plummet, dragging down PTA physical prices.”
PET, polyester H2 outlook hinges on demand upturnAsian PET and polyester makers enjoyed positive margins through most of the first half – from end-February to May.
As such, demand for feedstock MEG and PTA also remained healthy since the end of the Lunar New Year through to May.
Operating rates across Asian PET plants in China, Taiwan, South Korea and Southeast Asia were reported above 90% of capacity because of the good production economics. In comparison, for most of 2014, PET plants across Taiwan, South Korea operated at an average rate of 70%-75%, while in China, PET plants were operating at closer to 70% of capacity.
But from June, a seasonal lull in PET and polyester demand has led to run rate cuts of 10%-15% across several Taiwanese and South Korean PET plants and around 15%-20% at several Chinese PET plants.
“The post-summer seasonal lull for PET and polyester typically lasts from June to end-July/early August. Operating rates at PET plants [are expected to remain] reduced, and demand for feedstock MEG and PTA cut as a result,” said a South Korea-based PET producer.
Prices of Asian PET have fallen over the past several weeks due to falling MEG and PTA feedstock prices as well as the seasonal demand lull.
The PET production margin is calculated by multiplying the MEG price by a conversion of 0.38 and multiplying the PTA price by a conversion of 0.87, and adding an estimated $150/mt in production costs.
On July 1, the Asian PET production margin was calculated at minus $53/mt, with Asian MEG assessed at $920/mt CFR China, Asian PTA assessed at $705/mt CFR China, and Asian PET assessed at $1,060/mt FOB Northeast Asia, data showed.
“PET prices are likely to stay within a range of $1,020-$1,080/mt through July/first-half August, with a potential upturn in prices during the fourth quarter to above $1,130/mt, depending on demand, and also on MEG and PTA feedstock prices,” said a Taiwan-based PET producer.
Demand typically picks up ahead of the Christmas-New Year seasonal peak from late August and remains high through to November-December. But market sources expect the pick-up to be mild this year amid a shaky outlook for the Chinese economy.
China has lowered its growth target for gross domestic product to around 7% for 2015, decelerating from the 7.4% expansion in 2014, Platts has reported. In 2013, the economy grew by 7.7%.
However, despite the lower growth forecast for China, and talk of India leading Asian demand for polyester and feedstock in 2015, Chinese consumption is still seen to be considerable for the rest of 2015.
The rainy season keeps Indian PVC demand weak, June-October maintenance is set to tighten PVC supply and Turkish demand for Asian cargoes could rise.
Asian polyvinyl chloride spot prices will likely remain weak going into second half of the year, tracking softness in upstream crude and feedstock ethylene and chlorine prices, according to market sources.
They expect PVC prices to be pressured by weak seasonal demand in India in the third quarter and a bearish economic outlook in China.
Asian PVC margins narrowed in Q2 primarily due to an oversupply that drove down spot prices in India, coupled with sustained high feedstock ethylene prices from April to June.
The industry’s Q3 prospects will depend heavily on India, which remains the largest
wEAK PvC OUTLOOK ON FLAT DEMAND, FALLINg FEEDSTOCKS
22 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
importer of Asia-origin PVC. India produces about half of the PVC it consumes and imports the rest mostly from South Korea, Taiwan, China and Iran. About 70% of the imports are used for making pipes used in irrigation, water distribution and construction.
Indian PVC pipe demand is seasonally weak from June to September during the monsoon season. The country’s PVC stocks are high, and market participants do not expect import demand to pick up before September.
The Indian PVC market took a hit this year as a slowdown in the local economy tightened liquidity and dampened demand for raw materials in major sectors such as construction and agriculture.
“Indian demand for PVC pipes has been slow since April this year, because of a credit crunch in the market,” said a major producer of PVC pipes and products. This was exacerbated by poor harvests earlier in the year due to unseasonal rains that hit several parts of the country in March and April and cooler-than-average temperatures in April and early May.
Those factors limited PVC demand during the typical peak season just before the monsoons. The market will take longer than usual to digest the 180,000 mt of PVC imports that arrived in April, 120,000 mt in May and 105,000mt in June, sources said.
PVC spot prices in India had been on steady decline since a year-to-date high of $965/mt CFR India in the week ended May 1. Since
then, prices have fallen steadily to $875/mt CFR India in the week ended June 26 – a $90/mt drop in less than two months. Asian PVC spot prices were assessed at $885/mt CFR India, $855/mt CFR China and $850/mt CFR Southeast Asia the week ended July 15.
Q3 maintenance to tighten supplyMany participants expect tighter supply due to maintenance turnarounds to help balance ongoing weak demand in the coming months.
Taiwan’s China General Plastics Corp.’s 170,000 mt/year PVC plant is shut for a month of maintenance over June-July. In Japan, Taiyo Vinyl has scheduled monthlong turnarounds for its 150,000 mt/year PVC plant in Osaka in July-August and its 100,000 mt/year Chiba PVC plant in September-October.
In South Korea, Hanwha Chemical is expected to skip exports of suspension PVC over July and August due to an ongoing force majeure from its Ulsan complex, sources said. It declared force majeure on suspension PVC supply following a July 3 explosion at a wastewater disposal unit at its vinyl plant at the complex.
Trader sources expect the force majeure to last for at least a month, which will tighten suspension PVC supply by 8,000-9,000 mt/month.
Upstream, Taiwan VCM shut its 382,000 mt/year VCM plant for a three-week planned turnaround in early July. Taiwan’s Formosa Plastics is also expected to undergo planned maintenance at its 800,000-mt VCM plant
and 1.1 million mt/year EDC plant at Mailiao during July and August. As a result, PVC shipments to India are expected to fall sharply over July-September.
India imported 21,000 mt of PVC for the month as of July 9, which equates to about 70,000 mt for July if the rate continues. Market sources expect imports to fall below 60,000 mt in August.
Despite tighter regional supply, sources said weak downstream demand in India will likely keep importers’ bids low. But Q3 margins are expected to widen from Q2 as weaker prices for upstream ethylene and feedstocks EDC and VCM reduce production costs.
Possible rise in Turkish demandOne potential bright spot for the Asian PVC market in H2 could be increased demand from Turkey, which could make up for India’s sharp drop in imports. Turkey imports around 730,000-780,000 mt/year of PVC, market sources said.
Effective July 10, Turkey announced changes to its anti-dumping duties imposed on PVC imports from Germany and the US. The policy imposes an 18.81% duty on the CIF value of US PVC, compared with the previous $45/mt duty, and it now taxes German cargoes at 16.64% of CIF value, versus the previous $25-$45/mt.
Based on current offers, this could increase the duties imposed on US and German-origin PVC into Turkey by more than $150/mt, which would make Asia-origin PVC cargoes more attractive.
A Northeast Asian producer said South Korea stands to benefit because it has a free trade agreement with Turkey.
“If South Korean producers move more allocation to Turkey as expected, then we will get better sales in India,” the producer said.
23ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
OLEfINS AND POLYMERS
KEEP UP WITH THE SHALE GAS REVOLUTION
PLATTS gLOBAL POLYOLEFINS OUTLOOK HELPS YOU DIg DEEPER INTO:Potential price impactHow will the US shale gas advantage influence feedstock ethane prices and determine the competitiveness of US producers of ethylene and its derivative PE?
New capacity projectsWill PE output from new crackers and the subsequent export of PE displace traditional supply from key markets?
Global trade flowsTrack how global trade flows of PE/PP will change and understand what this means for regional markets; including how soon these markets will be impacted by new capacity.
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24 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
INTERMEDIATES AND CHLOR-ALKALI
China NBA, 2-EH and PA supply glut is to keeping the market weak. More supply will come on stream as new plants start up. DOP China imports from Taiwan will continue.
The Asian oxo-alcohols market is likely to remain in the doldrums for the remaining half of the year with no huge rebound in the Chinese economy forecast amid a mostly oversupplied market, industry sources said in July.
Most oxo-alcohol products rebounded in the first quarter amid a recovery in upstream crude and naphtha, but that was followed by declines in the second quarter when feedstocks propylene and orthoxylene softened.
Propylene, which is used to produce normal butyl alcohol and 2-ethyl hexanol, fell 20% from this year’s peak of $1,100/mt CFR China seen March 4 to a five-month low of $885/mt on July 21. That is the lowest price since February 12, when it was $868/mt.
NBA prices tracked the decline. Having peaked at $1,010/mt CFR China May 7 , prices have since dropped 11% to a three-month low of $900/mt on July 16. This was the lowest price since March 26, when it stood at $890/mt.
2-EH fell 9% from this year’s peak of $1,110/mt CFR China, also seen on May 7 to a four-month low of $1,010/mt on July 16. The last time it was any lower was February 26 at $950/mt.
Feedstock orthoxylene, used in phthalic anhydride production, also started its descent from a $997/mt CFR China peak seen May 8. Since then, OX prices have fallen 17% to a three-month low of $830/mt on July 16. The last time it was any lower was on April 2 when it stood at $815/mt.
After OX took a U-turn early May, PA prices trekked lower from their peak on May 14 when prices were at $1,020/mt CFR China. PA has fallen 16% since then to a four-month low of $860/mt on July 16. The last time it was any lower was March 5 at $850/mt.
Meanwhile, dioctyl phthalate, which uses 2-EH and PA as feedstocks, saw the biggest decline as demand from the plastics and PVC industry was largely very weak in the first half. It fell 15% to a six-year low of $1,060/mt on July 16 from this year’s peak of $1,240/mt on May 7. The last time it was any lower was on March 26, 2009 when it stood at $1,040/mt.
H1 margins squeezed as demand weakens in ChinaExcept for DOP, China was oversupplied in the first half, so buying activity for the most part was very thin, weighing on prices. Margins for 2-EH and DOP in the first half remained largely in positive territory. During the week ended June 25, 2-EH posted margins of $283.60/mt and DOP of $43.6/mt.
Margins for 2EH and DOP need to be at least $200 and $30, respectively, for producers to recover production costs.
NBA and PA margins, on the other hand, fared worse in most of the first half. NBA prices hovered below prices of its feedstock propylene, meaning negative margins. Due to this production of 2-EH was preferred over NBA, some NE Asia producers said. The spread of PA to its feedstock OX was in positive territory in the first half, but that was not enough for producers to recover the conversion cost of $100/mt.
OXO-ALCOHOLS MOSTLY BEARISH AMID OvERSUPPLY IN CHINA
DOP China imports surge March – April 2015 (mt)
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25ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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Increase in China importsThere was a noticeable year on year increase in Chinese imports in the first half, but this was attributed to comparatively lower imports last year when China’s economy experienced a slowdown.
The latest Chinese customs data showed that 2-EH imports in the first five month of the year totaled 90,883 mt, up 9% year on year. The rise was mainly due to a demand spike following the Lunar New year.
PA imports rose 25% to 29,131 mt while NBA posted a 15% year-on-year increase to 114,672 mt.
DOP saw the biggest jump, a fourfold increase to 80,718 mt during January to May. Sources said this was due to lower operating rates at most DOP plants, which suffered cash flow concerns amid credit issues with banks on the back of a weak plastics market.
H2 outlook bearish amid oversupplied ChinaOxo-alcohols will generally track upstream crude and feedstock propylene, as well as OX costs in the second half, market sources said in July. With bearish sentiment upstream, sources said oxo-alcohols will remain dull in the second half, with the Chinese economy under-performing and the market mostly oversupplied, except for DOP.
NBA: Supply in China currently exceeds demand while the rest of Asia looks largely balanced, a source said. New capacity in China could weigh on the market in the second half, sources said. Yantai Wanhua’s PDH plant will start up at the end of July and this is integrated with a 260,000 mt/year NBA plant, which in turn could start up in August.
2-EH: Like NBA, propylene will be a key driver in the second half. Propylene is expected to continue its descent due to fresh supplies in China. 2-EH’s Chinese market is already oversupplied but more
product is expected this year or next. “I don’t think there is any possibility of importing more because there are no plant turnarounds this year [in China] and there is a domestic supply glut, “a China-based buyer said.
Jiangsu Huacheng’s 200,000 mt/year 2-EH/NBA/IBA plant could come on stream in July, a source said, but this could not be confirmed with Huacheng. The plant can be configured to produce about 80,000 mt/year 2-EH.
Together with Shandong Sunrise’ 150,000 mt/year plant, some new plants in Anqing and Shanxi are expected to come online this year or next. A Northeast Asia-based source said that due to the oversupply in China, he expects the operating ratio for the rest of the year to stay at a minimum of around 60%.
DOP: Plastics and PVC demand has been very weak most part of this year and this
will most likely continue for the rest of 2015, sources said. The downtrend could be limited though due to the seasonal peak seen at end-August to September. Unlike other oxols products, DOP imports into China are expected to continue to flow in the second half. A major China-based DOP producer said that since the onset of 2015 it had been running at 30% of capacity or below, far from its 2014 run rates of above 70%. Unlisted factories in China were under pressure from banks to pay their credit this year, he said. Hence, most of them had cash flow problems and could not afford large quantities of feedstock 2-EH. This trend may persist for the rest of the year, the source said. Taiwan’s Nan Ya, a major DOP supplier, is expected to continue to export volumes to China and offer prices similar to domestic levels, the source said, adding that Nan Ya’s plants were integrated with the upstream and it has a tax-free incentive in China.
NBA margins mostly in negative region in H1 ($/mt)
26 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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PA: Demand for spot PA has been very weak as Chinese supply remained ample. Local prices were heard at Yuan 6,300/mt on July 16, or $813/mt on an import parity basis, while prices were down $35/mt week on week at $860/mt CFR China on July 16. “I don’t think [there will be] any big change compared to current market conditions,” a source said. Others said naphthalene-based PA was also competitively priced.
The domestic price for OX-based PA was heard at Yuan 6,100/mt on July 22 against naphthalene-based OX at Yuan 5,750/mt. In the short term, demand in China will remain weak, although Southeast Asia could see a demand spike since Ramadan is over. A Northeast Asia-based producer said it expected PA to remain weak until August, but by end August to September downstream seasonal demand from DOP manufacturers could pick up. Demand is expected to drop thereafter but the decline could be limited with plant maintenance season around October/November.
South Korea’s OCI’s 60,000 mt/year plant will be shut mid-November for two weeks, a company source said on July 20. LG Chem’s
60,000 mt/year plant in Yeosu will be shut in the fourth quarter for about two weeks, a company source said in July. Its 180,000 mt/year DOP plant at the same location will also be shut at the same time.
In China, new PA plants are expected to come online. Dragon Aromatic’s 140,000 mt/year plant in Fujian is currently under construction and the plant is expected to start up at the end of 2015 or next year, pending government approval. The explosion of Dragon Aromatics’ PX plant in April caused some concerns and could delay approval. Meanwhile, Tianjin Jinyuantai
Chem’s 80,000 mt/year PA plant was expected to start up this year. However, no concrete startup date has been confirmed. A China-based source said the company had built the plant three years ago but cash flow issues meant equipment purchases were delayed. Adding to the supply glut, there are also several naphthalene-based PA plants including Xingtai Xuyang, Handan Xinbao and Shandong Jefferies that are expected to start up in the second half, a source said.
Propylene poly grade FOB Korea2-EH CFR China weeklyMargin (left)
Renewed demand lifts prices in June from February low. July seasonal lull curbs price hikes. And monthly contract prices set trends across spot market.While the Asian caprolactam market recovered from a four-year low seen in February this year to reach its peak for the year in June, prices have since dropped with outlook for the second-half of the year seen mostly weaker amid volatile upstream market.
The CFR Far East Asia marker was assessed at $1,530/mt on February 5, down 53.6% from the same period in 2011 while the CFR Southeast Asia marker was assessed at $1,549/mt, down 53.2% from the same period in 2011 on February 5, 2015. Prices were last lower on April 9, 2009, when CFR Far East Asia marker was at $1,425/mt, and the CFR Southeast marker was at $1,435/mt, Platts data showed.
The four-year low reached in February was mainly due to weak demand in the
downstream nylon-6 market, said sources.
However, prices started to pick up in March this year on the back of improved demand supported by firmer feedstock benzene prices.
Caprolactam prices peaked in June being assessed at $1,800/mt CFR Far East Asia and $1,820/mt CFR Southeast Asia on June 4, supported by higher monthly contract prices and firmer feedstock benzene.
The monthly average for the FOB Korea benzene marker was $1,409/mt in June, up $126.50/mt from May.
CAPROLACTAM UNLIKELY TO CONTINUE RALLY AMID vOLATILE UPSTREAM
27ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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weaker second-halfBut the rally seen in June is unlikely to continue into July as it is a period of seasonal demand lull in the downstream nylon-6 sector with buying interest expected to pick up only from August to October ahead of the Christmas and New Year festivities, industry sources said.
“The demand for nylon-6 from the downstream textile industry will help support firmer caprolactam prices during this period [August-October],” a trading source added.
Monthly benchmark contract price settlements will also play a major role in the direction of the spot market, with volatility in feedstock benzene prices continuing to widen price gap between bids and offers.
The June CP settlements by Sumitomo Chemical was at $1,810/mt CFR Far East Asia, $70/mt lower than the May CP settlement. Spot prices are typically $50-$100/mt lower than the CPs, according to Platts data.
Feedstock benzene prices have been volatile of late and have also seen heavy declines since mid-2014 amid a supply gut in Asia.
The benzene FOB Korea marker plunged 44.9% from July 15, 2014, to $752/mt on July 14, 2015, while caprolactam prices fell 23.3% to $1,725/mt CFR Far East Asia during the same period.
The spread between feedstock benzene and caprolactam needs to be at least
$1,200/mt for caprolactam producers to make profits, a Far East Asia-based producer said. “We will monitor closely prices of benzene as continued volatility will hamper recovery in the caprolactam market in the near future,” the producer added.
28 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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China domestic supply glut so big that traders mull exports, but more supply comes on stream as new plants start up. Aug-Oct peak demand season unlikely to absorb surplus supplyThe Asian acrylonitrile market is likely to remain weak in the second half of the year as a rise in supply due to the startup of new plants, weak import demand from major
buyer China and falling feedstock propylene costs continue to weigh on prices, market sources said mid-July.
ACN prices fell 32% over the first half of the year despite a heavy turnaround season in the first quarter as new supply came on stream in China and propylene costs fell sharply, and the same factors will continue to drive the market in H2, sources said.
ACN fell $15/mt week on week to a six-year low of $1,265/mt CFR Far East Asia on July 14. It was last lower on July 16, 2009, at $1,215/mt.
Propylene was assessed at $900/mt CFR China on July 14 and 15, having tumbled $100/mt over the previous two weeks, and was expected to retreat further in H2 as new propane dehydrogenation plants came on stream in the region.
In China, Yantai Wanhua’s 750,000 mt/year PDH plant is expected to startup in mid-July, while in South Korea, Hyosung Corp. is expected to produce on spec propylene from its new 300,000 mt/year plant in August. Additional supply will also emerge from IRPC in Thailand and ADNOC in the UAE in H2, a propylene industry source said.
The anticipated decline in ACN prices in H2 could slow down or reverse during the typical peak demand season from acrylonitrile-butadiene-styrene and acrylic fiber producers over August-early October, but would inevitably resume late year under the weight of surplus supply, some sources said.
Domestic prices in China stood at Yuan 8,800-8,900/mt on July 14, equating to $1,164-$1,178/mt on an import parity basis excluding $30/mt tank storage fees, down sharply from Yuan 13,500/mt in early January.
The wide $87-$101/mt gap between domestic and global spot prices kept China buyers out of the spot market and import volumes low in H1, and this was likely to continue throughout H2 amid domestic oversupply, sources said.
China’s ACN imports plunged 50% year on year in May to 23,327 mt and were down 44% at 28,757 mt in April, latest Chinese customs data showed.
Domestic supply increased sharply over the same period after Shanghai Secco
China ACN imports down 50% year-on-year in May (mt)
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Cost of raw material (propylene+ammonia)ACN CFR FE AsiaMargin (left)
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OUTLOOK FOR ACN wEAK AMID CHINA SUPPLY gLUT
29ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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Petrochemical started up its new 260,000 mt/year ACN plant in Shanghai in March, following the startup in December 2014 of the 130,000 mt/year Dongying ACN plant by Shandong Ke Leur Chem, a joint venture between Sinopec and Wanda Petrochemical Group.
Sheng Hong is further expected to start up a new 260,000 mt ACN plant in Lianyungang in September or October. Its feedstock propylene will come from the company’s integrated methanol-to-olefins plant, so its ACN price is expected to be relatively more competitive. A source close to the matter said on July 16 that the plant would start up in early October with commercial sales to begin by the end of the month.
‘One year to calm market’Industry sources said the new plants would further pressure down prices in an already oversupplied domestic market in China, in turn weighing further on import prices.
It will “take one year to calm down the market,” a trader in China said. Operating rates at China domestic ACN plants as well as at other producers across Asia were expected to remain low in H2 amid the excess supply in the market.
Shanghai Petrochemical’s 130,000 mt/year ACN plant in Shanghai was expected to shut by August for maintenance and the
shutdown could be permanent, one market source said, although others were less sure, and this could not be confirmed with the company.
ACN production margins were largely positive at the start of the year but eroded over the first quarter as propylene prices retraced earlier losses and ACN prices fell steeply, flipping to negative March 10 at $76.50/mt. Producers need at least $100/mt on top of raw material costs to break even.
The margin fluctuated over March 10-27 and has remained consistently below the $100/mt mark since then.
The supply glut in China has prompted some traders in the country to mull exporting ACN for the first time, with one saying China could become a net exporter
by year end and others putting the time frame at two-three years.
However, one source said it may take quite a while for China to become a net exporter of ACN.
“If Chinese producers export, they will lose 4% tax and their price may not be able to compete with other overseas producers,” he said.
However, he added that several Chinese traders were already looking into possible export opportunities to Malaysia, Indonesia and Thailand, and South Korea and India were also possible options longer term.
2500Propylene poly grade CFR China weeklyACN CFR FE Asia weekly
Spot prices of vinyl acetate monomer (VAM) in Asia are likely to gain traction in the coming months, aided by tightening supplies due to plant turnarounds in Asia, an expected rebound in demand after the Ramadan season, downstream capacity additions in the ethylene vinyl acetate (EVA)
sector, primarily in China and Taiwan, as well as high feedstock costs, sources said in the week ended 14 July.
On the supply side, plant turnarounds in Asia are expected in the third quarter of 2015. Celanese Corporation’s 300,000 mt/year
plant in Nanjing China shut down for maintenance on June 30 while its 210,000 mt/year plant in Singapore is expected to undergo a three-week turnaround in August, an industry source said. The company could not be reached for comment.
Taiwan’s Dairen’s 650,000 mt/year plant in Mailiao is also expected to shut down for two months from September, two sources said. A turnaround in Sinopec’s 450,000 mt/
vAM PRICES SEEN SET TO RISE AS SUPPLY TIgHTENS
30 ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
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year VAM plant in Ningxia is likely in September or October, a source said, adding that plant turnarounds in Asia are likely to keep the market sentiment bullish.
Although some new capacity is expected to come online in 2016, with China’s Jiangsu Sopo planning to construct a 300,000mt/year VAM plant in Zhenjiang by early 2016, major capacity additions aren’t imminent, a source said. As a result, VAM supplies from Asia will likely remain limited, he added.
On the demand side, VAM consumption by emerging Asian markets such as India is expected to remain robust due to continued strength in the downstream emulsion and adhesive sectors, which are expected to grow at 10%-12% year-on-year in 2015, an industry source said.
VAM shipments are also expected to rise in major Asian consumption markets in the third quarter of 2015 after the Ramadan season ends around mid-July as operating rates are expected to increase after the holiday season.
Global demand for VAM is also strong as Europe is in its peak season for VAM consumption.
“Demand is picking up quite well. Contract customers call up their max volumes and nearly every partner looking for additional volumes so don’t think that there is as much
material available as there was at the start of the year,” a European trader said.
Increased competition from Europe for Middle East cargoes will likely keep VAM prices elevated in Asia, traders agreed.
VAM demand will also be boosted by the construction of downstream ethylene vinyl acetate (EVA) plants, industry sources said, noting that Taiwan’s USI Group and Taiwan’s Formosa Plastics are due to start EVA projects in the coming months.
USI Group plans to start up two new EVA/low density polyethylene (LDPE) swing plants in Kaohsiung, Taiwan, in the fourth quarter of 2015 and the first quarter of 2016, a company spokesperson said. The swing plants are expected to each produce 45,000mt/year of EVA/LDPE, with the EVA output containing vinyl acetate (VA) content of up to 40%, he continued.
EVA is usually used with additives such as wax and resin to make hot melt adhesives, hot glue sticks and soccer cleats. Some of its other applications include manufacture of sports equipment, sports boots and LCD screens.
In addition to positive demand-supply fundamentals, high feedstock acetic acid and ethylene prices are also expected to sustain VAM prices. Ethylene prices, which were assessed at $1,230/mt CFR Northeast Asia on 13 July, will likely be supported on fresh demand resulting from the planned
startups of new derivatives plants in China this year, industry sources said.
Supply of the hydrocarbon gas is also expected to tighten further in the second half of the year as more steam crackers in Asia are due to be shut down. Japan’s Sumitomo Chemical plans to shut its 416,000 mt/year naphtha-fed steam cracker in Chiba in September, while Taiwan’s CPC plans to shut its 500,000 mt/year naphtha-fed steam cracker in Kaohsiung by year end.
Concurrently, strong acetic acid prices emanating from the lack of new acetic acid capacity, major demand from downstream purified terephthalic acid (PTA) expansions in China, and growth in traditional and new applications will likely propel VAM prices, market sources said.
VAM prices were assessed at $1000/mt CFR South East Asia and $1,020/mt South Asia as on 9 July 2015.
Although an uptick in VAM prices is expected, prices are not likely to test the levels seen in 2014, when spot prices of VAM touched historical highs of above $1,700/mt cost and freight (CFR) Southeast Asia and South Asia in late March 2014 on the back of permanent closures of VAM plants in Europe, sources said, adding that the prevailing macroeconomic uncertainty and lower global growth forecasts will temper any significant price increases.
Among the latest round of cuts, the International Monetary Fund (IMF) on 9 July trimmed its forecast for global economic growth this year by 0.2% point below its previous forecast in April. China’s recent stock market plunge and persistent euro-zone woes are also likely to keep market sentiment slightly bearish.
2000VAM CFR SE Asia weekly VAM CFR South Asia weeklyVAM CFR China weekly
31ASIAN PETROCHEMICAL MARKETS // AN OuTLOOK fOR H2 2015
INTERMEDIATES AND CHLOR-ALKALI
Falling chlorine prices keep offers firm until August. Safety crackdown set to curb demand in Shandong, and capacity expansion to trim needs in IndonesiaAsian caustic soda prices are expected to remain firm into August amid tight spot supply before retreating as demand fades in both China and Southeast Asia in the fourth quarter.
Prices have risen 23.5% over the past six months since hitting a four-year low on January 20 at $255/mt FOB Northeast Asia to be last assessed at a 13-month high of $315/mt FOB Northeast Asia on July 21.
The rally is expected to stretch into August due to tight spot supply in Northeast Asia and low byproduct chlorine prices.
Caustic soda production in East China has remained low for most of the summer, with many chlor-alkali plants heard to be operating at around 70% of capacity amid higher electricity costs and falling chlorine prices. East China liquid chlorine prices were heard in the range of Yuan 200-400/mt ex-works in June, down sharply from Yuan 450-650/mt in January.
Chlorine is most commonly used in East China to make polyvinyl chloride, for which ethylene is also needed, and pesticides, where demand has dwindled in 2015 due to lower agricultural growth and rising environmental scrutiny.
“We have sold out our July and August shipments due to lower operating rates since June,” said a caustic soda producer in China. Another producer said selling ideas were unlikely to fall for August as lowered run rates were curbing inventory buildup.
Caustic soda’s main usage in North China is in alumina production, centered in Shandong province.
Alumina plants in Shandong are running at close to full capacity over summer due to strong downstream demand for aluminum, market sources said.
This has pressured export prices higher, with the netback for domestic sales around Yuan 20-30/mt higher than export sales.
However, domestic caustic soda prices are expected to retreat from September as Shandong’s alumina plants scale back production.
Aluminum production rates in the province have fallen sharply since local authorities ramped up safety and compliance requirements following a chemical tank explosion at Rizhao in mid-July, sources said.
Caustic soda prices in North China have fallen around Yuan 35/mt since the accident, with tradable levels currently heard around Yuan 540/mt.
Supply tight across AsiaOutside of China, spot caustic soda supply was heard to be tight for July and August amid planned turnarounds at major producers in Northeast Asia.
South Korea’s LG Chemical plans to shut its 230,000 mt/year caustic soda plant at Yeosu
over August-September for maintenance, while Taiwan’s Formosa Plastics plans to reduce caustic soda output over July-August while its 800,000 mt VCM and 1.1 million mt/year EDC lines at Mailiao undergo planned maintenance.
Supply in Southeast Asia is tight due to plant turnarounds and technical difficulties, and buyers with urgent needs have only been able to source Northeast Asian-origin cargoes at slightly higher prices for much of the summer, a trade source said.
The tightness was expected to ease in coming months as demand from Thailand typically fades during the wet season over August-September; Caustic soda is used mainly for water treatment in Thailand.
In Indonesia, caustic soda demand is also expected to weaken in H2 as the local paper and pulp industry faces increasing competition from Brazil, industry sources said.
Capacity expansion could further dampen prices, with Indonesia’s Asahimas planning to bring on stream an additional 200,000 dmt/year of caustic soda capacity by year end. Its complex at Anyer in West Java is currently able to produce 500,000 dmt/year of caustic soda, along with 300,000 mt/year of PVC and 400,000 mt/year of VCM.
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