Icis Chemical Business 2013

europe phenol Market remains stagnant as demand drops for derivatives. Operating rates are at 70-80% 13

asia tio2Prices in China are likely to soften in the coming months on producer inventory pressures 38

ANALYSIS OF CHEMICAL MARKETS

25 March-7 April 2013

us offtake dealdow and mitsui, idemitsu partner downstreamnews focus p9

Chemical Business

market intelliGence

china pe demandslows downVolumes are lower than levels right before the Lunar New Year. The mood remains pessimistic


ICB_250313_301 1 21/3/13 17:03:51

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ICB_250313_302 302 21/3/13 10:56:01

25 March-7 april 2013

25 March-7 April 2013 | ICIS Chemical Business | 3www.icis.com

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The phasing-out of cathode ray tube televisions in India is hitting polystyrene demand p19

Low phenol demand from coatings and construction in low temperatures keeps market desolate p13 IndianOil sounds out tyre makers as it aims to start up SBR JV in August p25

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Periodicals Entry

europe phenol Market remains stagnant as demand drops for derivatives. Operating rates are at 70-80% 13

asia tio2Prices in China are likely to soften in the coming months on producer inventory pressures 38

ANALYSIS OF CHEMICAL MARKETS

25 March-7 April 2013

us offtake dealdow and mitsui, idemitsu partner downstreamnews focus p9

Chemical Business

market intelliGence



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cover storyChina polyethylene demand is slowing to levels even lower than just before the Lunar New Year. The mood remains pessimistic.For the full story, see p10

voluMe 283 nuMbeR 11

Market outlook30 innovation Demand is growing for new

technologies in 3D printing that use polymers such as AbS, PC and polyamide

32 shale gas As shale gas and investment boost uS east coast refineries, what will the impact be on propylene production?

cheMical profile38 Asia TiO2 prices may have hit rock bottom39 Outlook uncertain for europe caprolactam

regulars5 commentary35 What’s on36 conferences & events37 Marketplace

special reports afpM suppleMeNt

shale gas revival Confidence shines out as producers face challenges

13 All quiet on the europe phenol front14 Demand weak for Pe resin in europe.

Turkey polyolefins demand slows; import offers grow

16 uS AbS faces downward pressure17 europe AbS buyers resist March hikes.

europe benzene market hits 10-month low19 India polystyrene weakness shows no sign

of ending20 europe March polyols mostly steady.

uS MMA prices set to increase in March21 europe ethanolamines steady-to-firm22 Asia bD price slump may continue.

Williams set to go ahead with PDH plant in Alberta

23 bASF, Dow reduce MDI output in Mar25 Asia SbR prices fall on lower bD26 Automotive use of nylon could grow

plaNts & projects29 new projects and permanent plant

shutdowns, 9-15 March 2013

NeWs BriefiNg6 Momentive ramps up epoxy resins

production in Spain7 number of uS housing starts rises 0.8%

in February8 IndianOil’s acetic acid JV makes progress

focus9 Dow sets downstream plans

treNds Market iNtelligeNce10 China Pe demand sinks to lower than

ahead of Lunar new Year11 Cyber threat reaches crisis level

prices & Markets12 ne Asia ethylene set to keep falling.

battle lines drawn for uS April maleic anhydride prices

ICB_250313_003 3 21/3/13 19:11:42

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ICB_250313_004 4 21/3/13 11:43:39

commentary


Do you agree? Email: [email protected] or go to the commentary blog at icis.com/blogs/editorscommentary

Alam

y

The winner will be selected from the ICIS Top 40

It is our pleasure to introduce the ICIS Kavaler Award, sponsored by The Chemists’ Club. This new award will recognise one CEO or senior ex-ecutive for outstanding achievement and excel-lence each year.

The key distinguishing feature of this unique award is that the winner is selected by his/her peers – the executives selected in the previous ICIS Top 40 Power Players listing, a global rundown of the people making the greatest impact on the chemical industry.

We know of no other award in the chemical industry given on the basis of a senior executive peer vote.

We will invite each of the ICIS Top 40 Power Players for 2012 to vote for three individuals in the ballot, based on newsworthy achievement in one or more of the fol-lowing categories:■ profitability/shareholder value;■ mergers and acquisitions (deals or integration);■ projects/capital investment; and■ innovation – technology, product, business process with an impact on industry and society.

The ballot will be strictly confidential, sent not to ICIS or The Chemists’ Club, but to an independent New York law firm, which will record the votes and pass the results along to the ICIS/Chemists’ Club committee overseeing the event.

We will send out the letters and ballots in early April, and the deadline for the ballot entry will be 1 May 2013.

We plan to present the ICIS Kavaler Award, sponsored by The Chemists’ Club, to the winner at a black tie din-ner in New York City in late October or early November, on a date to be announced.

The award is a revival of the Kavaler Award, which was presented by Chemical Market Reporter to leading chemical CEOs from 1990 to 1999, including Jon Hunts-man Sr, founder, chairman and CEO of Huntsman, and Frank Popoff, chairman and CEO of Dow Chemical.

Arthur Kavaler, who served for 46 years as reporter, editor and eventually publisher and editor-in-chief of Chemical Market Reporter – one of the three publica-tions incorporated into ICIS Chemical Business – passed away at the age of 91 on 18 January 2012.

Kavaler, a probing reporter and an editor with unwa-vering conviction, had a major impact on chemical in-dustry journalism.

To the ICIS Top 40 Power Players, we greatly appreci-ate your participation in the selection process for this unique and important new award. One drawback – you cannot vote for yourself. Thank you! ■

The new award, sponsored by The Chemists’ Club, will honour one of the ICIS Top 40 Power Players in a vote among peers. An award dinner will take place towards the end of the year

ICIS Kavaler Award

The distinguishing feature ofthis award is that the winner is selected by his/her peers

joSeph Chang nEw york

Uk shale move is good news for Europe

news that the UK government is to promote the exploration of shale gas will be wel-comed by many in Europe’s beleaguered chemical sector as a step in the right direc-tion for a region struggling with an uncom-petitive feedstock position.

Shale gas is transforming the US chemical industry while in Europe the only significant activity so far has been in eastern Europe – and that is still at an early stage.

The UK government is adopting a far more positive attitude than many others in Europe: in France, for ex-ample, there is still a ban on shale exploration. The UK move is quite a brave one, coming only a couple of years

after activity was suspended following a series of minor earthquakes in the northwest near an exploration site.

If Europe can unlock its own unconventional resourc-es it could have a significant impact on feedstock and energy pricing. At present, gas prices are still tied in to oil prices for much of the European market. Moves to intro-duce more of an element of spot gas pricing into contracts could be accelerated if more gas became available, and should exert downward pressure on energy prices.

Switzerland-based INEOS is planning to ship ethane to Europe from the US to gain a feedstock advantage. It is easy to imagine how much the whole region could benefit from indigenous sources of the product. ■

wIll BeaCham lonDon

ICIS TOP 40 POWER PLAYERS

LEADERS OF THE PACKMeet the champions who have led the chemical industry through a tough year

ICB_250313_005 5 21/3/13 15:46:42

news

www.icis.com6 | ICIS Chemical Business | 25 March-7 April 2013

briefing

For real-time news and analysis from our global team of reporters, visit:icis.com/about/news

pic of the week

cyprus bailout drama buildsThe nexus of the eurozone crisis has shifted to Cyprus, where legis-lators voted down the EU’s bailout package, which would take a slice out of bank deposits. Banks will remain shut until later this week.

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MoMentive raMps Up epoxy resins in spainMomentive Specialty Chemicals has more than tripled its water-borne epoxy resin production ca-pacity with the development of new production facilities in Barbastro, Spain, the US-based company said. The site will allow it to produce its complete range of standard and modified epoxy resin emulsions and dispersions, and is already producing Momen-tive’s in-house surfactants.

eU cheM exports rise by 8% in 2012 – eUrostatEU exports of chemical products increased by 8% year on year in 2012, EU statistics body Eurostat said. Exports for the full-year 2012 stood at €276.2bn ($358.7bn) while import levels increased by 4% year on year to €161.7bn. In-creased export levels for the year also helped to drive the region’s trade surplus for chemical prod-ucts to €114.5bn, a 14% increase on the €100.8bn trade surplus for the full-year 2011.

hUntsMan pUts MDi ops UnDer MaintenancePlanned maintenance is under-way at Huntsman’s methyl di-phenylene isocyanate (MDI) op-erations at Rozenburg in the Netherlands, a company source said. “The turnaround started as planned last Friday [15 March] and it affects both MDI units [at the site],” said the source, adding that: “It is planned and routine and has been taken into consid-eration.” The outage is likely to last around four weeks. MDI ca-pacity there is estimated at 400,000 tonnes/year.

basf cUts gerMany Jobs to focUs on asia-pacificJobs will be lost in Germany but added in China, India and Turkey in a “re-shaping” of BASF’s leather and textiles chemicals business, the company said. The Germany-headquartered chemicals major said it would increase focus in the

business on Asia-Pacific markets and “high value-adding applica-tions” such as those for “the leath-er automotive industry and pre-mium textile articles”.

croatia-baseD Dioki goes into pre-bankrUptcy Croatia-based polymers manufac-turer Dioki has entered into a pre-bankruptcy process, one of the bidders for the company said, which it added could be utilised to save production units. Croatian oil and gas supplier Crodux Plin is one of the businesses interested in acquiring Dioki, and has submit-ted a plan for the takeover and re-structuring of the company. Crodux has requested that Dioki’s board invite it to financially and operationally restructure the com-pany in line with pre-bankruptcy settlements, as part of a plan that would see it take a majority stake.

versalis cracker back to norMal after restartVersalis’ cracker in Dunkirk, France is running normally follow-ing an unplanned outage, a source from the Italy-based producer said.

The cracker went down unexpect-edly around 20 February because of an undisclosed technical prob-lem and was restarted the week ended 15 March. The cracker has the capacity to produce 380,000 tonnes/year of ethylene and 210,000 tonnes/year of propylene, according to ICIS data.

rUssia petcheM oUtpUt rises in 2013 to DateRussia’s overall production of chemical and petrochemical products was up year on year in January and February, Russian statistics agency Rosstat said. In the January-February period this year, plastics output was 13.2% up year on year at 978,000 tonnes while synthetic rubber produc-tion was 9.3% up year on year at 275,000 tonnes.

linDe wins contract to bUilD gassco terMinalGerman gases and engineering firm Linde Group has won a con-tract from Norwegian state-owned company Gassco to build a natural gas terminal in Emden, Germany, it said. The contract

deal, worth around €260m ($333m), was awarded by Gassco on behalf of the Gassled joint ven-ture. The new terminal, which is set to go on stream at the end of 2015, will distribute natural gas from Norwegian-owned gas fields in the North Sea to Germany.

oltchiM naMes cheMical engineer as new ceoOltchim shareholders said that a new CEO, Mihail Talpasanu, has been selected for the Romania-based chemicals company. He will be expected to steer the in-solvent company towards a po-tential future privatisation. A chemical engineer, Talpasanu re-places Mihai Balan, whose man-date ended on 15 March.

aMericas

propylene inventories in Us increase by 9.7%US propylene inventories jumped 9.7% week on week to hit their highest level in nine weeks, ac-cording to data released by the US Energy Information Administra-tion (EIA). US inventories of non-fuel refinery-sourced propylene were at 3.354m bbl for the week ended 15 March, compared with 3.057m bbl a week earlier. This is the highest inventories have been in the US since the week ended 4 January, when stockpiles were at 3.475m bbl. Sources said demand has declined on high downstream stockpiles while refinery operat-ing rates have risen.

katoen natie to bUilD $150M petcheM storageA Belgian logistics firm plans to build a $150m (€116m) petro-chemical storage and processing complex in Baton Rouge, Louisi-ana, the company said. Katoen Natie’s 2m square foot facility (190,000 square metres) near the ExxonMobil plant there will proc-ess and store chemical products when completed in 2018. The first phase, which will include 600,000 square feet of storage space and rail lines, is expected to be finished by the end of the year.

ICB_250313_006-008 6 21/3/13 15:23:12

news

www.icis.com 25 March-7 April 2013 | ICIS Chemical Business | 7

voices from the web

most-readThe top five stories for the week just gone:1 LANXESS to temp close Belgium butyl rubber, Texas EPDM

LONDON -- LANXESS plans to temporarily shut down its butyl rubber plant in Belgium and its EPDM production in Texas.

2 Asia naphtha market under pressure as plastics demand weakensSINGAPORE -- Spot naphtha prices in Asia are feeling the downward pressure from weakening plastics demand.

3 NE Asia ethylene hits three-month low, no bottom in sightSINGAPORE -- Northeast Asian ethylene spot prices have fallen to a three-month low and could head further south.

4 LyondellBasell plans 800m lb/year ethylene expansionNEW YORK -- LyondellBasell plans to add 800m lb/year (363,000 tonnes/year) of ethylene capacity at Corpus Christi, Texas.

5 Europe PE, PP higher price targets fall short on slow demandLONDON -- Polyethylene (PE) and polypropylene (PP) price hikes are falling short of targets in Europe.

Cyber threat reaches crisis levelTHINK TANK P10

Because employees can’t be trusted, we have put in place a massive system of policies and controls to make sure no one steps out of line. It costs hundreds of millions of shareholder and customer dollars to manage this system, but it must be worth it because we’re so certain our employees are untrustworthy – notwithstanding the fact that we hired every one of them ourselves.business week blog on employees can’t be trusted■ www.businessweek.com/blogs/the-management-blog

The controversial bailout deal for Cyprus proposed by eurozone finance ministers has led President Nicos Anasta-siades to promise investors who stay in the country after the compulsory forfeit of 9.9 per cent of their deposits that they will share in the country’s future wealth from natural gas.financial times – Nick butler on gas in Cyprus■ blogs.ft.com/nick-butler

US President Barack Obama nominated Dr Ernest Moniz, the director of the Massachusetts Institute of Technology’s Energy Initiative, to replace Steven Chu at the Department of Energy (DoE). He also nominated Gina McCarthy, the assistant administrator in charge of air and radiation at the US Environmental Protection Agency (EPA) to replace former administrator Lisa Jackson.methanol institute blog on new appointments■ methanol.org/blog

Are you worried about the economic outlook for your company, for your family and for your country? Do you suspect that current policies may be doing more harm than good?Paul hodges on sustaining growth■ www.icis.com/blogs/chemicals-and-the-economy

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toyo siGNs deaL to buiLd evoh PLaNt iN houstoNJapan’s Toyo Engineering said it has won a turnkey contract from Nippon Synthetic Chemical In-dustry to build a 15,000 tonne/year ethylene vinyl alcohol (EVOH) plant at La Porte in Houston. Con-struction of the new plant is sched-uled to begin in the summer of this year and be completed at the end of 2014. The project will add a third production line to two exist-ing lines, which have a combined EVOH capacity of 23,000 tonnes/year, according to Toyo.

huNtsmaN returNs texas cracker to fuLL ratesUS chemical company Hunsts-man said it has returned its Port Neches cracker in Texas to full op-eration after a period of mainte-nance. The company shut down the 193,000 tonne/year unit in January, but restarting it at the end of the maintenance period took longer than expected as a result of issues with bringing it back online. Adverse weather was also a factor.

Number of us housiNG starts rises 0.8% iN febUS new home construction rose by 0.8% in February from Janu-ary, the Commerce Department said, and last month’s 4.6% growth in the number of building permits issued suggests contin-ued housing recovery ahead. Housing starts last month were at a seasonally adjusted annual rate of 917,000 units, a 0.8% gain over the upwardly revised January fig-ure of 910,000. The current pace of US residential construction ac-

US housing starts on the rise

tivity is considerably ahead of year-ago figures. The February home building pace was nearly 28% higher than February 2012.

Nexeo Gets arkema fLoor care resiNs distributioNNexeo Solutions has been ap-pointed exclusive distributor for Arkema’s acrylic and styrene acrylic emulsion products for floor care applications through-out the US and Canada, the US-based chemicals distributor said. The deal includes distribution of Arkema’s ENCOR-brand product line. In addition to marketing and distribution, Nexeo will provide dedicated technical services, such as formulation, lab and ap-plication assistance to Arkema.

fLiNt hiLLs resources rePorts uNit shutdowNsUS producer Flint Hills Resourc-es has shut down of several proc-ess units at its Port Arthur chemi-cal facilities in Texas, according to a public filing. The shut down occurred on 19 March and was caused by a leak on the demetha-nizer feed tower feed separator in the light olefins unit, according to the filing with the Texas Commis-sion on Environmental Quality (TCEQ). The company has 621,000 tonnes/year of ethylene capacity at the cracker, which was restarted the week ended 15 March after a week-long outage.

maiNteNaNce eNds at bayer tdi uNits iN texas The maintenance turnaround for Bayer MaterialScience’s toluene di-isocyanate (TDI) units in Bay-town, Texas, is complete and both units are operational. Bayer’s me-thyl di-p-phenylene isocyanate (MDI) production train is still un-dergoing its planned nine-week turnaround, the company said. The company has been conduct-ing inspections, and performing maintenance and project work. Bayer is working with its custom-ers to plan for their needs during the turnaround.

PhiLLiPs 66 seaLs deaLs for crude LoGisticsPhillips 66 has sealed three agree-ments with energy logistics firms to increase supplies of lower-cost

Check out the ICIS blogs at icis.com/blog

These are the most read stories taken from ICIS news last week. To find out more visit: icis.com/about/news

ICB_250313_006-008 7 21/3/13 15:23:41

news



government policy

UK to introduce tax relief for shaleChancellor of the Exchequer George Osborne promised as part of the UK’s latest budget announcement to introduce tax relief for shale gas drilling. In the speech, he called shale gas “part of the future”.

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US and Canadian crudes to its US refineries. Enbridge will provide railcar loadings of US Bakken shale crude to Phillips 66 refiner-ies on the west and east coasts, and possibly in the US Gulf Coast. Targa Resources Partners agreed to provide rail unloading and barge loading services in Tacoma, Wash-ington. Magellan Midstream Part-ners will transport cost-advan-taged crudes on Magellan’s pipelines near Phillips 66’s refin-ery in Ponca City, Oklahoma.

canada chem sales rise 1.7% in JanUaryCanadian chemical sales rose by 1.7% to Canadian dollar (C$) 4.03bn ($3.91bn) in January from December. Compared with January 2012, chemical sales were up 0.1% year on year, Statistics Canada said. Sales of plastics and rubber prod-ucts rose 2.2% to C$1.93bn in Jan-uary, from December. Compared with January 2012, plastics and rubber product sales were down 1.7% year on year. Canadian petro-leum and coal product sales fell 1.8% to C$7.05bn in January from December but were up 1.5% year on year from January 2012.

asia

indianoil’s acetic acid Jv maKes progressIndianOil’s planned acetic acid (AA) joint venture at Vadodara, Gujarat, is progressing, with tech-nology selection for the upstream units likely to completed over the next few months. The proposed 1m tonne/year AA plant - a joint venture with BP Chemical - will be based on petroleum coke gener-ated at IndianOil’s refinery at Koy-ali, Vadodara. Besides the acetic acid facility, the project also in-cludes petroleum coke gasifica-tion and syngas production. The project, which is expected to cost Rs60-65bn ($1.1-1.2bn), is likely to be completed in 2016-2017.

indianoil aims at 2016 for polypropylene proJectIndianOil hopes to commission a 680,000 tonnes/year polypropyl-ene (PP) project at Paradip, on the east coast of India, in 2016. “The project will shortly go for board approval; if we get the approval in

the next two to three months then we can start up in 2016,” said Sid-hartha Mitra, executive director for petrochemicals at IndianOil. The PP project will be down-stream of IndianOil’s new 15m tonnes/year refinery at Paradip, which is scheduled to start up in phases from September and ex-pected to be fully operational in March 2014, said Mitra.

indianoil to expand laB capacity in 2015-2016IndianOil plans to expand its lin-ear alkyl benzene (LAB) plant at Vadodara in Gujarat state by 42,000 tonnes/year in 2015-2016. “Demand for LAB in India is ex-pected to grow at 6-7% annually in the coming years, as rural con-sumption of surfactants has in-creased,” said Sidhartha Mitra, executive director for petrochemi-cals. Following the expansion, In-dianOil’s LAB capacity will in-crease to 162,000 tonnes/year. IndianOil had been looking at ex-panding its LAB capacity for a few years, but no firm decision or start-up date had beeen announced.

taiwan’s fpcc mUlls cracKer rate cUtsTaiwan’s Formosa Petrochemical Corp (FPCC) is considering re-

ducing run rates at its three naph-tha crackers at Mailiao, a compa-ny source said. The three crackers – with a combined ethylene nameplate capacity of 2.93m tonnes/year – are currently run-ning at 100% capacity, he said. Ethylene margins based on naph-tha feedstock have come under pressure in northeast Asia partly because of sharp falls in ethylene and co-product prices.

saBic shUts JUBail no 2 styrene monomer UnitSABIC has unexpectedly shut its 500,000 tonne/year SADAF No 2 styrene monomer (SM) unit at Ju-bail, Saudi Arabia, on 19 March, a market source said. The specific reason for the shutdown and the exact restarting date for the unit is unavailable. The company shut its 550,000 tonne/year SADAF No 1 styrene monomer (SM) unit at the same site from early February for maintenance, which is expected to be restarted at the end of March.

reliance to restart laB Unit By end of marchIndia’s Reliance Industries plans to restart its linear alkyl benzene (LAB) plant at Vadodara in Gu-jarat state by the end of March after a maintenance shutdown, a

source close to the company said. “The plant was shut down in the third week of February, initially for just a month, but it got extend-ed by a couple more weeks be-cause of some technical issues that cropped up,” the source said. The turnaround at the 60,000 tonne/year plant has resulted in a tightening of supply in the Indian LAB market, causing inventory levels to decline to 15,000 tonnes in March from 20,000 tonnes in February, market sources said.

tsrc may cUt Br rUn rate in april on weaK demandTaiwan Synthetic Rubber Corp (TSRC) may reduce the operating rate of its 60,000 tonne/year buta-diene rubber (BR) plant in Kaoh-siung, Taiwan, to 80% of capacity in April unless market conditions improve, a company source said. The plant is running at 100% of capacity in March, the source added. “We will certainly con-sider reducing the operating rate by 10-20% if conditions do not improve,” the source said.

indian prodUcers Bring in price protectionIndia’s Reliance Industries Ltd (RIL), Haldia Petrochemicals and GAIL announced a price protec-tion on polypropylene (PP), high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) in the domestic market, industry sources said. The move is aimed at boosting buying senti-ment amid falling import prices and weak downstream demand. The price protection started on 19 March and it will remain valid until 1 April.

aKzonoBel to invest a fUrther €65m in chinaDutch producer AkzoNobel will invest a further €65m ($84m) to boost capacity and significantly improve operational excellence at AkzoNobel’s surface chemistry manufacturing sites in Boxing of Shandong and Ningbo of Zhejiang in China. More than half the money is being invested in the Boxing fa-cility, the company said in a state-ment. A new alkoxylation unit will be built in Ningbo, Zhejiang prov-ince, bringing the total investment at the multi-site close to €400m.

ICB_250313_006-008 8 21/3/13 15:23:56

news focus


US-based Dow Chemical has partnered up with Japan-based companies Idemitsu Kosan and Mitsui on an ethylene offtake agreement, and outlined its own plans for downstream facilities from its planned new 1.5bn tonne/year cracker in Freeport, Texas, US.

Idemitsu and Mitsui are ex-ploring the creation of a 50:50 joint venture to build a 330,000 tonne/year linear alpha olefins (LAO) unit in the US. The com-panies also signed an initial agreement to offtake ethylene from Dow’s US Gulf Coast facili-ties for LAO production.

Dow said that the joint venture would “contribute significant capital” for rights to supply LAO to its performance plastics busi-ness, without giving financial de-tails. LAO are used as comono-mers throughout that business. Dow would not disclose whether it would take all the LAO output.

A final investment decision on the LAO unit will be made in 2014, with production starting up in 2016, said Idemitsu and Mitsui.

LAO output of 330,000 tonnes would require about 380,000 tonnes of ethylene. Dow said at its investor day meeting in De-cember 2012 that about 1.1m tonnes/year of ethylene output from its new cracker would be used to make its own derivatives.

“Dow is not looking for addi-tional downstream partner op-portunities but will evaluate and explore opportunities if and when they arise,” said Nancy Lamb, a Dow spokesperson.

DO-IT-YOURSELFDow itself will build a metal-locene ethylene propylene diene monomer (EPDM) plant, and fa-cilities to produce high melt index (HMI) elastomers for hot melt adhesives; “enhanced” poly-ethylene (PE); and specialty low density polyethylene (LDPE).

The units will produce perform-ance materials for the packaging, medical, electrical, consumer, tele-com and leisure industries. Dow is currently scouting locations along the Gulf Coast, with the exact spot to be announced at a later date.

“Today’s announcement further illustrates Dow’s commitment to invest in high-return projects that deliver advantaged feedstocks for our differentiated, downstream derivatives, while simultaneously building strategic partnerships that drive economies of scale and improved capital efficiency,” said Dow CEO Andrew Liveris.

“As an investor in Dow’s Gulf Coast project, Idemitsu and Mitsui will receive ethylene integration benefits while improving the capi-tal efficiency of the cracker from a Dow perspective,” said executive vice president Jim Fitterling. “In addition, Dow secures a reliable, integrated, cost-advantaged source of comonomers for our perform-ance plastics franchise.”

The facilities are currently in the front end engineering and de-sign (FEED) phase, which is ex-pected to be completed in 2014.

“These new facilities will in-clude a wide range of technologies that will produce differentiated, high performance materials for the fastest growing segments in Dow’s

existing markets, while providing access to new markets and appli-cations,” said Fitterling. “These investments are also aimed at businesses that have consistently delivered a higher return on capi-tal, which is clearly aligned with our long-term strategy.”

Dow said that its plans for a new 1.5m tonne/year ethane cracker at Freeport are progressing, with de-tailed engineering and the pur-chase of long lead time equipment having been approved. The crack-er is expected to start up in 2017.

Dow is also lifting ethane crack-ing capability at Plaquemine, Lou-isiana. It restarted its 380,000 tonne/year cracker in St Charles, Louisiana, in December 2012.

DERIVATIVES CAPACITYA picture is slowly emerging of how petrochemical producers in North America intend to add value to their already significant local ethylene cost advantage through new derivatives capacities.

Graham van’t Hoff, Shell’s new executive vice president for chemi-cals, said at a briefing on 14 March: “It’s more than probable that we will re-enter polyethylene.”

Shell will not recreate a core PE business – it sold its PE inter-ests, a stake in the Basell polyole-fins joint venture, in 2005. But it

could add PE capacity to add value to the ethylene it plans to produce from a new world-scale cracker in Monaca, Pennsylvania, US, close to its own exploration interests in the Marcellus shale.

“We look at polyethylene very much as a route to monetise ethyl-ene,” van’t Hoff said. Shell has also talked of building monoethyl-ene glycol (MEG) capacity associ-ated with the cracker investment. The company has its own OMEGA MEG process technology.

Van’t Hoff also said that Shell has a number of projects planned for the US Gulf coast to help it cap-ture more value from advantaged natural gas liquids (NGLs) based feedstocks but he gave no details.

“We are looking to extend posi-tions relative to our US Gulf port-folio,” he said. “We are working on a lot of things in the US Gulf.” Shell has capacities for olefins and first line derivatives in the area. ■Tom Brown and Regan Hartnell in London also contributed to this article

All quiet on the Europe phenol fronttrEnds P13

Idemitsu and Mitsui sign offtake agreement with US major to produce linear alpha olefins. Dow sets up polymers units

PROjECTS nIgeL davIS lonDon joSepH CHang new york

Dow sets downstream plans

Be among the first to hear about chemical companies’ plans: icis.com/news

“Idemitsu and Mitsui will receive ethylene integration benefits while improving the capital efficiency of the cracker”jIM FITTERLING Executive vice president, Dow

dow’s new units will produce performance materials for packaging

rex

Feat

ures

ICB_250313_009 9 21/3/13 16:43:38

Market intelligence


Do you agree or not? We want your feedback. Email [email protected]


$/tonne, film, import spot CFR China

LLDPELDPEHDPE

CHINA POLYETHYLENE PRICES

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What a difference three months can make. Back in December 2012, polyethylene (PE) traders were re-portedly stocking up “like crazy” in anticipation of a bumper year in the Chinese market.

The assumption was that the economic recovery of late 2012 and January 2013, which was the result of per-haps politically motivated stimulus spending, would continue throughout this year.

But, as one Singapore trader describes, the outlook has radically shifted. China’s demand for PE is even lower than immediately ahead of the Lunar New Year, which took place in mid-February, he said.

“For demand to be less than just before the New Year, when most traders had already pulled out of the market to avoid cargoes being stranded at ports during the holi-day period, is remarkable. In the 10 years I’ve been in this business, this has never happened before,” he said.

“Trading has come to a virtual halt and re-exports have increased,” the trader noted. Re-exports comprise resin shipped to China and held in bonded warehouses. When that resin fails to find a home in the domestic market, it is shipped to other countries.

“I got it wrong as I thought there would be a strong recovery after the holidays, but it didn’t happen because of policy uncertainty,” said the trader. “Most other trad-ers are in the same position. We all thought monetary conditions would remain favourable.”

Vincent Andrews, analyst with investment bank Mor-gan Stanley, said that “anecdotal evidence and bench-mark integrated PE margins in Northeast Asia suggest the anticipated demand recovery may be faltering”.

Managements of companies attending Susquehanna International Group’s 2013 Chemicals Conference in Boston, Massachusetts, on 14-15 March also noted the disappointing near-term market conditions in China.

“Chinese economic recovery has not rebounded as fast as expected post the Lunar New Year and the man-agements of the companies attending our conference were somewhat surprised that the new Chinese politi-cal leadership has not taken more aggressive steps to stimulate the economy,” said analyst Don Carson.

“Restrictions on the property market, reduced liquidity in the banking system and lower new lending in February

have reduced PE buying,” said the Singapore trader. “People are worried that Beijing will have to take more measures to cap property prices, as what has happened so far is unlikely to work. They think that eventually in-terest rates will have to be increased because overall infla-tion is also rising. This is further dampening activity.”

TAPPING DOWN INFLATIONBut while the People’s Bank of China (PBOC) is keen to take a more aggressive stance on inflation, government agencies, such as the National Development and Reform Commission, are eager to maintain the recovery, said an 11 March Reuters article.

February inflation was, however, at 3.2%, up from 2.0% in January and close to the government’s maxi-mum annualised target of 3.5%.

The risk is that if the cost of living continues to rise at this pace, the PBOC might win the battle, leading to an increase in interest rates earlier than the fourth quarter, the current consensus forecast.

“A rise in interest rates would be a major blow to the market,” said the trader. And even if pro-growth govern-ment agencies get their way for most of this year, the PBOC looks set to continue its policy of reducing liquid-ity as a tool to fight inflation.

A further reason to expect less credit in the system is that overall lending for January-February is ahead of the central bank’s annualised target.

“Take January and February together and new loans are being extended at a [yuan (CNY)] 10tr [$1.6tr] rate for the year [on an annualised basis], well above the CNY8.5tr-9tr that Wang Jun, senior economist at the well-connected China Centre for International Econom-ic Exchanges, believes the PBOC is tasked with for 2013,” said Reuters.

Measures to control the shadow-banking system also seem likely. Total new credit, including loans through the informal or shadow-banking system and official lending, hit an all-time high in 2012.

China’s demand for PE is even lower than immediately ahead of the Lunar New Year

China PE demand sinksDemand is now so weak in China that buying is less than immediately ahead of the Lunar New Year, when markets had virtually shut down. The mood remains pessimistic

JOHN RICHARDSON PERTH

ICB_250313_010-011 10 20/3/13 16:18:03


think tank

market intelligence

Rex

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ures

The US says cyber attacks from China have reached an unprecedented scale

Top US intelligence and security officials have raised the threat of cyber attacks and online espionage to crisis level, warn-ing that the US will retaliate against any major assault and naming China as the chief perpetrator.

Tom Donilon, national security advisor to President Barack Obama, said in a speech that cyber attacks from China have reached an unprecedented scale, and he warned that the US cannot further accept such intrusions.

While noting that US national security issues are at stake in cyber space, Donilon said that “this is not solely a na-tional security concern or a concern of the US government”.

“Increasingly, US businesses are speaking out about their serious con-cerns about sophisticated, targeted theft of confidential business information and proprietary technologies through cyber intrusions emanating from China on an unprecedented scale,” he said.

“The international community cannot afford to tolerate such activity from any country,” Donilon said, quoting Obama as saying that “we will take action to protect our economy against cyber threats”.

At a hearing before the House Committee on Homeland Security, chair-man Michael McCaul (Republican-Texas) warned that a co-ordinated attack on US natural gas, water and electric power sys-tems could be devastating and result in months of infrastructure shutdowns and collapse of the nation’s economy.

“This is not science fiction, it is reality,” McCaul said, citing reports that “China is the source of nearly 90% of cyber attacks against the US”.

James Clapper, the top US intelligence and counter-intelligence official, told a Senate Intelligence Committee hearing that the US could be hit by a major cyber attack within the next two years, resulting in long-term and wide-scale disruption of services such as electric power.

Clapper, director of national intelligence, said that while the chances of a catastroph-ic cyber attack are small, US intelligence agencies and owners and operators of criti-cal infrastructure facilities must take action to protect against such an assault.

In his wide-ranging testimony, he said that such a destructive attack would re-quire a level of technical expertise and operational sophistication that only a few nations or non-state actors possess. But he said that such advanced cyber-intelli-gence and cyber-espionage actors as China and Russia “are unlikely to launch such a devastating attack against the US outside of a military conflict or crisis that they believe threatens their vital interests”.

the US could be hit by a major cyber attack within the next two years

Joe KamalICK WASHIngTOn DC

Cyber threat reaCheS CriSiS level

The positive news about the above influences on in-flation is that they are within China’s means to control.

But another factor behind the rising cost of living – the surge in global oil prices – is beyond China’s control, unless it raises subsidies on fuel prices.

“Today, gasoline is at CNY9,630/tonne and diesel at CNY8,810/tonne compared to June 2008’s peaks of CNY6,980/tonne and CNY6,520/tonne,” said Paul Hodges, chairman of UK-based chemicals consultancy International e-Chem in a 13 March post on his ICIS blog, Chemicals and the Economy.

“China’s gasoline price for 90 RON [grade] is thus $4.60/gal [$1.20/litre] compared to current US prices of $3.75/gal. European prices are even higher at $8.00-$9.00/gal,” he added.

“The mood in China’s PE market is very pessimistic at the moment,” said an Asia-based source with a North America-headquartered polyolefins producer.

“Traders were stocking up like crazy in December and January because they thought the recovery would last. At one point before the Chinese New Year, some of them had more than a month’s worth of inventory, com-pared with the usual two weeks,” the source said. “They have, as a result, been offloading material to minimise their losses, but I haven’t heard of any re-export trade from China, although it seems possible.”

Traditionally, the Chinese market has saved the world, but the source added: “Whilst prices are rising in the US right now, they are falling in China.”

China’s PE spot prices across all of the grades fell by $5-40/tonne during the week ended 15 March. This marked the third week in a row of declining prices.

“We are not only facing a period of weak demand, but also one of increased supply,” said the polyolefins pro-ducer. “Middle East turnarounds are coming to an end in April-May and new capacity is starting up.”

But it is not all doom and gloom. Despite the likeli-hood that China’s overall growth in polyolefins demand will again be less than the increase in GDP in 2013, some segments of the business are doing very well.

“Demand growth from higher-value converters – for example, those producing high moisture-barrier PE film – remains excellent. It is in the high single digits,” said a source with a second producer. “These converters are now very successfully taking on the Europeans because they have become very sophisticated. They are produc-ing excellent quality films as a result of high degrees of technical knowledge. And they are very cost-efficient because of investment in automation.” ■additional reporting by Joseph Chang

Managements of companies attending Susquehanna international Group’s 2013 Chemicals Conference in boston also noted the disappointing near-term market conditions in China

ICB_250313_010-011 11 20/3/13 16:18:05

price & market trendsFor up-to-date information on more than 120 global commodities, visit:icis.com/about/price-reports


Northeast Asian ethylene spot prices have fallen to a three-month low and could head fur-ther south because of weak de-rivative demand, market sources said on 15 March.

Ethylene daily spot prices were assessed at $1,250-1,270/tonne (€962.50-977.90) CFR (cost and freight) northeast (NE) Asia on 14 March – the lowest since 7 Decem-ber 2012, and off a record four-and-a-half-year high of $1,400-1,430/tonne CFR NE Asia that was achieved in late February this year, according to ICIS data.

Ethylene spot prices had kicked off 2013 on a strong note, mainly driven by supply fundamentals.

Producers in South Korea had limited spot availability because of improved domestic demand on the back of a pick-up in poly-mer production in the months of January-February.

EXPORTS TO US, EUROPEHigher ethylene prices in Europe and the US partly due to both planned and unplanned cracker shutdowns had also lured prod-uct out of Asia, keeping supply in the region snug, sources said.

The market rally in northeast Asia started to lose steam by the end of February as spot prices of key derivatives ranging from pol-yethylene (PE) to monoethylene glycol (MEG) could not keep pace with the hike in ethylene feed-stock values.

As such, buying interest dwin-dled from the leading China mar-ket after the Lunar New Year holi-days particularly as derivative demand did not take off as strong-ly as expected.

“Before the Lunar New Year holidays, ethylene buyers in China had bought a lot of cargoes

but downstream demand did not improve after the New Year and stocks became too high,” said a Taiwan-based olefins trader, speaking in Mandarin.

Derivative PE and MEG spot prices also weakened in recent weeks partly in line with falls in upstream naphtha and crude fu-tures and amid macro-economic concerns from the European debt crisis to recent cooling measures on the property market in China.

The ethylene market plunge had caught some market players by surprise as they had expected the uptrend to last longer partly be-

cause of limited spot supply from the region and the Middle East.

Both planned and unplanned cracker turnarounds in Abu Dhabi and Saudi Arabia in Janu-ary-February had capped a lid on exports from these two countries, which led to a firmer market in southeast Asia compared with the northeast as the former tradi-tionally receives ethylene from the Middle East.

Ethylene spot prices in south-east Asia were assessed at $1,370-1,410/tonne CFR SE Asia on 14 March.

EARLY PEAK“We had expected an extremely good first half and the market to peak around mid-May but the market has now peaked earlier than expected,” said a Japanese olefins trader.

The sharp pace of the decline has also raised concerns among ethylene buyers, most of whom retreated to the sidelines by the end of the week.

“The market is very unstable and we do not want to take risks,” said a vinyls producer based in South Korea. ■

OLEFINS Peh Soo hwee singApore

NE Asia ethylene set to keep fallingDownstream demand after the Lunar new Year holidays has been poor in Asia, as it is in europe

$/tonne, spot CFR NE Asia

ASIA ETHYLENE PRICES

900

1,000

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Mar2012

A drop in feedstock costs could lead to a reduction in the April contract price for US maleic an-hydride (MA), sources said.

Contract prices rolled over in March from February, and market players agreed in early March that supply and demand were in rela-tive balance.

MA was assessed by ICIS at 93.20-99.20 cents/lb ($2,055-2187/tonne, €1,582-1,684/tonne) as of 12 March.

But the price of primary feed-stock normal butane, also called n-butane, led some market play-ers to speculate that buyers would

begin lobbying for a price de-crease in April.

With butane continuing to drop, the buyers said, it was time for producers to offer a reduction in MA pricing.

SUPPLY SNUgNESSBut “battle lines are being drawn”, the buyer said, as pro-ducers are citing a snugness in supply, brought on by some pro-duction issues.

Major producer LANXESS was just coming out of a planned turn-around, and another producer was said to be having production

issues. However, the latter was not confirmed.

A producer said that with the price of butane continuing to fall, it would not be surprising that there would soon be discussions about a price decrease. As yet,

there have been no definitive dis-cussions along those lines, the producer said.

“I think there will be some re-duction – the question is how much that reduction will be,” the producer said. ■

INTERmEdIATES ken fountaIn new York

Battle lines drawn for Us April maleic anhydride

Cents/lb, molten, contract FOB US Gulf

US MALEIC ANHYDRIDE PRICES

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Mar2012

ICB_250313_012-013 12 20/3/13 16:14:46

price & market trends


India polystyrene weakness shows no sign of endingTRENDS P19

The European phenol market re-mains stagnant and no major shifts in supply and demand dy-namics are expected in the com-ing months, producers and con-sumers said on 15 March.

“No big things are happening and there are no arguments to change the market. I don’t agree with people being pessimistic – 2011 was a great year and so was 2012. January and February this year have not been that bad,” a major producer said.

However, buyers across the phenol chain say that business is weak and there are no signs on the horizon that things are going to improve soon. They also spoke about their individual market sec-tors becoming more and more competitive and many said they had taken less volume than ex-pected so far this year.

STRONG COMPETITIONA large buyer for the phenolic resin sector said it took less phenol than originally planned and that business was under pressure be-cause co-producers were being very competitive on price. Accord-ing to the buyer, spot phenol was being offered in the market at a price below its contract and as a contract buyer this was a problem.

“Quarter one was not great and our phenol demand is by far not what we thought and not at the level we forecast. We’re not tak-ing full volumes on contract,” the buyer concluded. A second major buyer in the nylon intermediates

market described phenol as “ex-tremely quiet”.

“Most manufacturers have re-duced [production] to the absolute balance of phenol demand and op-timising for [by-product] acetone. Apparently they [phenol produc-ers] can make enough money on acetone to compensate for the loss-es on phenol,” the buyer said.

The buyer spoke about down-stream markets in the polyamide [nylon] chain as being under tre-mendous pressure.

“It’s all about trying to get costs to the absolute minimum. We have normal demand but we are fighting for market share but not making any money. Downstream end-users don’t care – carpets, housing, tyre cord – they are just not willing to absorb the cost,” the buyer added.

Because of the drop in demand for phenol derivatives, phenol op-erating rates in Europe are estimat-ed to be running at 70-80 % capac-ity, but in the feedstock benzene

market, sources estimate phenol output to be closer to 50-60%.

Demand for phenol and phenol derivatives has been slowing since July 2012 and operating rates in Europe have been running at low levels ever since. This has largely been the result of a drop in global demand for major phenol derivative polycarbonate (PC).

However, with most phenol derivatives heavily linked to the coatings and construction indus-tries, the below-average tempera-tures across Europe have had an adverse effect on demand so far this month.

“Phenol demand is low for March from coatings and con-struction because of the bad weather. Normally things get bet-ter in March but it’s still very cold,” said a phenol seller. An-other seller also said customers had yet to return to the market for their “spring purchases”.

Meanwhile, very rarely does

phenol get a mention in the ben-zene market, particularly by trad-ers, but benzene sources have noticed that there has been less demand from the phenol market. One normally very active ben-zene trader said: “I’ve seen fewer phenol nominations.”

A phenol producer said: “Ben-zene people mentioning phenol, now that’s worth a mention. I think it’s some sort of message but I don’t see the [phenol] market being worse than three months ago. It’s been stable for five to six month now.”

BENZENE DEPENDENCYThe unpredictable nature of major feedstock benzene is problematic for the phenol market, because it is so heavily linked to the monthly benzene contract price.

Phenol consumers have no in-fluence over the direction of ben-zene, although from the top to the bottom of the phenol chain, ben-zene is a determining factor in not only price but often also demand.

The high cost of benzene has created what some described as “demand damage”, but a major phenol producer strongly believes that it is simply a demand story and not a feedstock price one.

Meanwhile, benzene spot pric-es hit their lowest point since May 2012.

On 15 March, March spot ben-zene was trading $1,250-1,260/tonne (€963-970/tonne) CIF (cost, insurance and freight) ARA (Am-sterdam-Rotterdam-Antwerp). ■

INTERMEDIaTES JulIa Meehan london

all quiet on the Europe phenol frontBecause of the drop in demand for derivatives, phenol operating rates in Europe are estimated to be running at 70-80%

€/tonne, spot FD NWE

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Below-average temperatures have reduced phenol demand from coatings and construction sectors, further drying up market activity

Rex

Feat

ures

ICB_250313_012-013 13 20/3/13 16:14:49



Demand for spot polyethylene (PE) in Europe is weak, and producers are struggling to lift prices follow-ing the €50/tonne ($65/tonne) in-crease in the March ethylene con-tract price as many sources now expect an upstream decrease for April, sources said on 15 March.

“We are no longer targeting a €50/tonne increase,” said one supplier. “For so long nobody has been buying anything anywhere,” said a trader.

Producers had started the month targeting hikes in line with the €50/tonne rise in the ethylene contract price but those goals soon softened as it became clear that demand would not support such levels.

Spot prices rose by some euros at the beginning of the month but offers are back to end-February lev-

els in mid-March and trading activ-ity is very limited. Traders, howev-er, are not able to buy new volumes at workable price levels and find themselves chasing meagre sales.

“There’s no cheap material on the sourcing side. We’re trying hard to move quantities but it’s a hard game right now,” said anoth-er trader. Producers’ spot offers are also limited as most have adjusted production to control inventories in today’s lacklustre market.

falling naphthaNow that naphtha prices have begun to trend down there are ex-pectations of a lower ethylene con-tract in April, in spite of a heavy slate of scheduled shutdowns at the cracker level. Expectations of a decrease in the April ethylene

monomer contract price have begun to have a dampening effect of demand and price expectations.

“I am running down my stock,” said a large PE buyer. “It’ll [PE pric-ing] go down in April. If you settled early this month you’ll regret it.”

“It is more difficult to pass in-creases through now compared to the beginning of the month,” agreed a supplier.

Contractual volumes move along as normal, as long as the price is right, admitted a couple of producers. “We are hitting our sales forecast for the month but

are not able to lift prices beyond €20/tonne,” said one.

Another said: “I am happy with the demand, it’s just the prices they want to pay I am not happy with!”

One major supplier said busi-ness was up by as much as €40/tonne for March, but the starting point was not clear.

Net low density polyethylene (LDPE) prices are trading at €1,300-1,350/tonne FD (free de-livered) NWE (northwest Eu-rope). PE is used widely in the packaging, household goods and agricultural sectors. ■

€/tonne, GP film, spot FD NWE

EUROPE LDPE PRICES

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Mar2012

Polyethylene (PE) demand in Tur-key is low, at a time when the vol-ume of offers from various regions has increased and global demand has taken a hit, sources said.

“The market is asleep,” said one trader. “People aren’t buying be-cause they expect prices to fall.”

“In the past few days offers have gone down drastically,” said another on 18 March.

Material from Europe is now being offered into Turkey, as a re-sult of flat demand elsewhere in the region. Low density polyeth-ylene (LDPE) and polypropylene (PP) offers have been heard.

OffERS fROM EUROpEPP offers from Europe are said to be around €1,200/tonne ($1,558/tonne) CFR, while LDPE is talked at €1,260-1,270/tonne CFR. Euro-pean product is not subject to duty, so is higher than many of-fers from dutiable areas on a CFR

basis. No European producer has confirmed selling at such num-bers but buyers in Turkey say they have bought PP in particular.

High density polyethylene (HPDE) is still offered from Saudi Arabia at $1,600/tonne CFR, sub-ject to 6.5% duty, but sources question how much product is behind these offers and stress that

such prices, confirmed by buyers at the end of February, are no longer workable.

Buyers’ price ideas for Iranian HDPE are now at $1,500/tonne CFR and sometimes below, and little business is reported to have been done. Holidays and truck availability issues have also led to a slowdown of this business, on

top of the hesitation from the market in general.

Turkish buyers keep a close eye on price movements in Asia, and Iranian HDPE cargoes were offered the week ended 15 March barely above $1,300/tonne CFR in some cases. The difference between freight and the availability of trans-port makes a big price difference inevitable, but nevertheless Turk-ish buyers expect levels to erode.

UnREaliStiC pRiCES“Nobody is buying at $1,510/tonne CFR let alone $1,600/tonne [CFR],” said one of the traders.

“I was offered some HDPE at $1,430/tonne FOB from Asia. Have I bought? No,” said another.

“In the end, though, they are running their factories, they will have to buy,” it added.

The local Turkish producer also dropped its prices the week ended 15 March, by up to $25/tonne.. ■

$/tonne, GP film, spot CFR

TURKEY LDPE PRICES

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Mar2012

pOlyMERS LInda nayLor london

Demand weak for pE resin in EuropeProducers find it difficult to pass on a recent hike in the feedstock ethylene contract price

Turkey polyolefins demand slows; import offers growpOlyMERS LInda nayLor london

ICB_250313_014 14 20/3/13 16:12:34

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ICB_250313_015 15 21/3/13 11:21:21



US acrylonitrile-butadiene-sty-rene (ABS) buyers and sellers on 14 March were seeing nothing but downward pressure with two weeks to go until the monthly contract settlement.

Several market participants said that if all factors remain the same, they see the March contract price for general purpose US ABS settling at below $1.30/lb ($2,866/tonne, €2,207).

One factor pushing US ABS prices lower is falling feedstock prices, market sources said.

ABS is a plastic that is 40-60% styrene, 15-35% acrylonitrile (ACN) and 5-30% butadiene (BD). The most commonly used compo-sitions are made up of 60% sty-rene, 20% ACN and 20% BD.

butadiene rethinkThe BD March contract settled higher by 8 cents/lb at 84 cents/lb, but high inventories and weak demand are already making BD buyers and sellers rethink that price. Market sources said that if the BD April contract were settled

today, it would come in some-where between 80-82 cents/lb.

US Gulf spot contracts for ACN remained unchanged the week ended 8 March, despite the fact that feedstock propylene dropped by 6 cents/lb. Sources said the drop in propylene was not enough to cut the price of ACN but that further reductions, which are ex-pected, may move the ACN price to under $1,900/tonne US FOB.

Some market participants were warning of widespread weak de-

mand that resulted in deals in Asia for $1,920/tonne CFR.

The one missing piece of the ABS puzzle, market sources said, is styrene. For the week ended 8 March, spot prices ranged from 74 cents/lb to 76.25 cents/lb US Gulf FOB. One market participant reported spot trades the week ended 15 March ranging from 72 cents/lb to 74 cents/lb. Forecasts earlier in the month had put spot US styrene at about 78 cents/lb.

“If it’s trading even at 74 or 75

[cents/lb], that’s a significant drop from February,” said one trader, who noted the February spot ex-port average was at 77.81 cents/lb. “That’s almost 3 cents/lb lower and surely to have an effect on the price of ABS.”

Other market participants are worried about continuing weak-ness in Asia, where the ABS spot price is at 85-90 cents/lb. With weak demand in Asia, market sources said they were worried that Asian imports of ABS were putting pressure on US prices.

riSe in iMPOrtSAccording to the latest trade data from the US International Trade Commission, US ABS imports for January rose by 14% to 11,325 tonnes from 9,949 tonnes in Janu-ary 2012. Imports from Korea rose 83%, while Taiwan shipped 25% more product to the US.

“I regularly get quoted prices of $1 [per tonne],” said one market source. “I’ve been buying materi-al from Asia as low as 90 cents [per tonne] delivered.” ■

POlyMerS mark yoSt houston

uS abS faces downward pressureLower feedstock costs and imports weigh on prices. Continuing weakness in the Asia market is also a concern

$/tonne, DEL US Gulf

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Spot styrene monomer (SM) pric-es in Asia appeared to be taking a breather from sharp falls, but could resume their downtrend in the near term as supply will grow long when turnarounds at region-al plants are completed, industry sources said on on 14 March.

Prices were hovering at above $1,650/tonne (€1,271/tonne) CFR (cost and freight) China, after fall-ing 5% from the start of the year and hitting a low of $1,610/tonne CFR China on 4 March.

“With Asian and Middle Eastern facilities completing their mainte-nance by May, and [the] Taixing Xinpu Chemical [SM plant] start-up in late April, Asia SM supply will be growing in the second quar-

ter,” said a Korean trader.China will get fresh SM supply

late next month, with the start-up Taixing Xinpu Chemical’s 320,000 tonne/year plant.

No imminent recovery in de-mand is expected as the US and eurozone economies are weak.

cargO liquidatiOnSM traders were seen liquidating cargoes, expecting consumption of downstream styrenic resins to decline, in line with the contin-ued weakness in demand for Asian-made products.

After falling to the low $1,600s/tonne CFR China early this month, SM prices seemed to have found solid footing above $1,650/tonne.

“Some speculators are cover-ing their short positions, which is sustaining prices this week,” said a Korean trader.

Some end-users were also heard bidding for cargoes, provid-ing further support to the market.

But this market consolidation may be fleeting as demand from downstream styrenic resins sec-

tor remained lacklustre, some market players said.

Expectations remains that res-ins demand will stay soft on dis-mal exports of finished goods by China – a key SM market.

Talks of deep-sea SM parcels from the US and the Middle East flowing into Asia further weighed on market sentiment. ■

arOMaticS ClIve ong singApore

Asia styrene monomer pauses after 5% slump

$/tonne, CFR China

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Mar2013

Mar2012

ICB_250313_016-017 16 20/3/13 16:08:35



IndianOil SBR joint venture to start up in AugustTRENDS P25

Global bearishness and softening derivative demand has pulled the European benzene market down to its lowest point since May 2012, sources said.

While the US market posted a slight recovery towards the end of the week ended 8 March, one North American source described the gains as “trivial”.

The source cited caution among some players following a sell-off in the Asian benzene market, where values dropped by as much as $40/tonne (€31/tonne) on 8 March.

“The US benzene market is still weak,” said a European trad-er, adding that lower derivative demand was a key factor in the recent fall in domestic pricing.

“Styrene demand is lower with the turnarounds. We are also see-ing reduced nominations from the phenol sector, so there is plenty of [benzene] around.”

European styrene numbers also saw some erosion towards the end of the week ended 8 March, with players looking to move material amid slower than expected con-struction demand and the arrival of imports into the ARA (Amster-dam-Rotterdam-Antwerp) region.

However, the market was bouncing back on 11 March, with talk of one major player looking to secure material.

Additionally, there is a growing sense that the feedstock restrictions that have plagued the benzene market since early 2012 are starting to ease, at least in the short term.

“It looks like there is more pygas [pyrolysis gasoline] being pro-duced,” said a source, but it added it was also hearing contradictory reports of more propane being used in the steam cracking process.

PRICE ACTIONAfter deals for March delivery as high as $1,380/tonne CIF (cost, in-surance and freight) ARA early in the week ended 8 March, the mar-ket gradually lost ground ahead of the European Petrochemical Luncheon on 7 March.

Several sources noted that sen-timent among benzene players at the event was markedly bearish.

“It has been a funny three months since Christmas,” said one. “There has been lots of liquid-ity and volatility, but nobody has been really making any money.”

By 8 March, current month values had dropped to $1,265-1,290/tonne CIF ARA, before deals were done at $1,265/tonne and $1,275/tonne.

The March contract price was settled at $1,380/tonne FOB (free on board) NWE (northwest Eu-rope) in US dollar terms, and converted to €1,054/tonne.

Despite the current weakness, several players believe European pricing will not fall much further.

One trader said it sees $1,230/tonne as the current floor, and that prices are still historically high.

“I don’t see it moving much lower than where it is now, unless naphtha tanks,” the trader said. ■

$/tonne, spot CIF ARA

EUROPE BENZENE PRICES

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Mar2013

Mar2012

Buyers in the European acryloni-trile-butadiene-styrene (ABS) mar-ket are resisting price hikes of up to €60/tonne for March contract business because of flat demand and ample supply, sources said.

However, suppliers’ bullish stance on prices may mean buyers will not see much of a reduction on March contract price targets.

Some producers had targeted increases of up to €60/tonne ($78/tonne) for March, citing higher feedstock costs and good demand in January and February as the main reasons for the increase.

Other producers are waiting for the outcome of the March feed-stock acrylonitrile (ACN) contract price before committing to a firm figure for ABS hikes.

“We are still waiting for ACN [to settle] … we will probably see how raw materials are going to change [this] week,” a producer said on 11 March.

Buyers’ initial reactions to the €60/tonne target were that it was too high, and that current de-mand levels did not warrant such a large hike.

But producers are being bullish on prices and not giving away much ground in their negotiations.

“Producers are being very per-sistent and not accepting a rollo-ver,” a distributor said, adding that it had had to accept increases of up to €50/tonne for general purpose grades of ABS.

Views on demand are mixed. Producers have seen good demand levels in February, which they ex-pect to continue into March. While not able to pinpoint the exact cause of the increase, producers said higher prices for Asian-pro-duced ABS, as well as increased spot enquiries for certain grades, had kept demand satisfactory.

COUNTERBALANCED DEMANDOne supplier saw demand from eastern European markets, as well as Russia and Turkey, as keeping demand levels consistent, coun-terbalancing the drop-off in southern Europe caused by weak economic conditions.

However, buyers still see de-mand as being fairly flat, with some experiencing a slight drop compared with February. General economic malaise in European markets, particularly in the auto-motive industry in southern Eu-rope, has impacted ABS demand.

ABS prices rolled over in Feb-ruary at €2,195-2,265/tonne free delivered (FD) northwest Europe (NWE) for compounding grade, €2,285-2,370/tonne FD NWE for injection moulding (natural) and €2,210-2,370/tonne FD NWE for extrusion grade (natural), accord-ing to ICIS.

ABS is widely used in the auto-motive and household goods sec-tors, in the production of car inte-riors and domestic appliances. ■

AROMATICs truong mellor london

Europe benzene market reaches 10-month low

€/tonne, injection moulding natural, FD NWE

EUROPE ABS PRICES

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Mar2013

Mar2012

Europe ABs buyers resist March hikes

POLyMERs matt tudBall london

Producers cite higher feedstocks, but buyers see flat demand

ICB_250313_016-017 17 20/3/13 16:08:37

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Polymers in 3DMARKET OUTLOOK P30

India’s polystyrene (PS) con-sumption looks set to end the cur-rent fiscal year at below 250,000 tonnes, representing a 6-7% de-cline from the previous year, with the weakness expected to contin-ue and weigh on prices of the ma-terial, industry sources said.

A growing trend of substitution, particularly for high impact PS (HIPS) by acrylonitrile-butadiene-styrene (ABS), is partly to blame for the weaker demand in the year ending 31 March 2013, they said.

On 8 March, general purpose PS (GPPS) prices were assessed at an average of $1,920/tonne CFR (cost and freight) India, down by $2.50/tonne from the previous week, while high impact PS (HIPS) were steady at $2,030/tonne, according to ICIS.

PS is widely used in casings of household appliances, including air-conditioners, refrigerators and televisions – which are referred to as “white goods”.

“Sale of ‘white goods’ are defi-nitely down from last year – that has affected demand for PS,” said a source at a major Indian producer.

Uncertainty in the economic outlook and rising domestic inter-est rates have made Indian con-sumers cautious, leading to lower sales of electronics and house-hold appliances, consequently hurting PS demand, he said.

DOMESTIC PRODUCTIONIndia’s PS requirement is mostly covered by domestic production, industry sources said.

Major producers in the country include Supreme Petrochem with a 272,000 tonne/year capacity; LG Polymers India with an 80,000 tonne/year capacity; and BASF with a 60,000 tonne/year capacity.

India is also a major exporter of PS to the Gulf Cooperation Coun-

cil (GCC) countries – Bahrain, Kuwait, Oman, Qatar, Saudi Ara-bia and the UAE – and East Medi-terranean markets. India also im-ports the material but only in small volumes, mainly from Sin-gapore or Taiwan.

PS has another major end-use in food packaging, being the raw material for the production of sty-rofoam. It is the world’s fourth most widely used polymer after polyethylene (PE), polyvinyl chloride (PVC) and polypropyl-ene (PP).

SUBSTITUTION PREfERREDHigh cost, backed by firm prices of feedstock styrene monomer (SM) is among the main deter-rents to PS consumption as it en-courages substitution.

For the most part of current fis-cal year, which started April 2012, HIPS prices in India were firm as SM prices were kept high by tight supply.

In September 2012, SM prices rose to a record high of $1,820/tonne FOB (free on board) Rotter-dam. Prices of the feedstock have also been on an uptrend for near-ly a year, peaking at $1,800/tonne CFR China in early January 2013, according to ICIS.

PS converters, however, could not easily pass on their high pro-duction cost to consumers, prompting cautious buying to avoid an inventory build-up. A number of them have begun to evaluate substitutes such as poly-ethylene terephthalate (PET) and PP for applications in food pack-aging, and the use of ABS instead of HIPS, industry sources said.

ABS – which is traditionally more expensive than HIPS be-cause of its better strength proper-ties – found increasing accept-ance among manufacturers of electronic appliances, as prices of the rival material rose steeply, narrowing the price gap between ABS and HIPS.

CRT TV SwITCh-OffThe gradual phasing-out of cath-ode ray tube (CRT) televisions (TVs) in India, with the advent of new technology that made slim-

mer models possible, exacerbated the decline in demand for HIPS.

ABS is used in the now popular light-emitting diode (LED) and light crystal display (LCD) TVs, as it lends a glossy finish to applianc-es. HIPS, on the other hand, tends to give a duller and matt finish.

“The phase-out of CRT TVs in the country is likely to affect PS demand further, as these form a significant portion of the PS mar-ket,” a source from another Indi-an PS maker said.

PS is now relegated to the back portions of LCD and LED TVs, while for the visible areas that re-quire a high-gloss finish, ABS is now being used.

In the food packaging sector, PET and PP are gaining populari-ty in view of the high PS prices.

Plastic converters in the GCC are also finding difficulty passing on the high PS prices to end-us-ers, thereby also weakening the demand for India’s PS, industry sources said.

Supreme Petrochem and LG Polymers are the major exporters of PS to the Middle East. ■

$/tonne, CFR India

India GPPSIndia HIPSStyrene, CFR China

INDIA POLYSTYRENE PRICES

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2,200

Mar2013

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POlyMERS veena pathare singApore

India polystyrene weakness shows no sign of endingA major substitution trend is taking place, with more ABs being used in modern televisions

the phase-out of Crt televisions in India is hitting pS demand

rex

Feat

ures

“Sale of ‘white goods’ are definitely down from last year – that has affected demand for polystyrene”SOURCEMajor Indian producer

ICB_250313_019 19 20/3/13 15:49:42



European polyol contract settle-ments in March have been mixed between rollovers and increases of €10-40/tonne ($13-52/tonne), as higher upstream propylene costs were weighed against fragile downstream demand and reason-ably good supply, said market players on 13 March.

Despite the stable-to-firmer sen-timent, any price increases in March were largely incorporated within the existing ranges. Europe-an March contract prices remain steady at €1,770-1,870/tonne FD (free delivered) NWE (northwest Europe) for flexible polyols and €2,010-2,080/tonne FD NWE for rigid polyols, according to ICIS.

GIVE AND TAKENumbers either side of the ranges were also heard, but they were not widely confirmed. One producer said it had been firm on its price stance and secured increases of €20-30/tonne for both flexible and rigid polyol monthly business in March. However, it conceded that it had also lost some volumes.

Other sellers had accepted roll-overs for flexible polyols in March in most cases, albeit with some minor selective increases. They said that while there was an underlying need to increase pric-es across the board because of in-

tensified cost pressure, they said it had been difficult to achieve be-cause of strong competition and modest downstream demand.

Flexible polyols buyers con-firmed rollovers and minor in-creases, with some variation, de-pending on supplier. One customer said it had concluded the bulk of its flexible polyol business at a roll-over prior to news of the increase in the propylene contract price for March and said it accepted increas-es of up to €30/tonne for limited volumes only. A second buyer said it had resisted any polyol price rises in March, despite higher costs, because of good availability. A few other customers, however, said they had accepted minor increases based on higher costs only.

For rigid polyols, prices largely rolled over into March, taking into account a large proportion of quar-terly business, where prices are fixed until the end of March. For monthly business, which remains limited, rollovers were heard, as well as a few rises of €10-30/tonne.

SUBDUED DEMANDFlexible polyols demand in the downstream bedding and furniture sectors remain subdued for eco-nomic and weather-related rea-sons. Rigid polyols demand from the main downstream construction sector is expected to seasonally pick up over the next few months – weather permitting – but this is also likely to be weighed against how the economy pans out.

Flexible polyols supply is gen-erally described as good, but ad-vanced polyols remain structur-ally tight because of their lower yield when compared with standard grades. Players are closely monitoring polyols sup-ply over the next few months, taking into account a spate of polyol plant turnarounds and the expected seasonal uptick in rigid demand. Buyers, however, said they do not expect to see any ad-verse effects on supply as the turnarounds are planned and de-mand is modest anyway.

plANT ShUTDowNSIn manufacturing news, Dow Chemical’s polyols operations at Terneuzen, the Netherlands, is due to enter into a five-week planned maintenance turnaround for all grades starting 22 March.

There is also market talk that Shell Chemical’s polyols facility at Pernis in the Netherlands is also expected to undergo planned maintenance work over the next few months, possibly in the early part of the second quarter. How-ever, this has not been confirmed.

Planned maintenance is under way at Bayer MaterialScience’s polyols plant maintenance at Fos-sur-Mer site in France. Details on duration were not available. ■

polyMErS heIdI fInCh london

Europe March polyols mostly steadyFlexible polyols demand is subdued while rigid polyols demand is expected to seasonally pick up

US March methyl methacrylate (MMA) contracts are expected to increase on strong demand and higher feedstock costs, sources said on 14 March.

With price-increase nomina-tions of 5 cents/lb ($110/tonne, €85/tonne) and 7 cents/lb, market sources said March contracts are generally going up by 6 cents/lb.

“The increase is partly driven by raw materials, party by supply and demand,” a producer said. “The low-$1.20s/lb is where the market is settling.”

February contracts were as-sessed by ICIS at $1.15-1.19/lb on an FD railcar (free delivered via railcar) basis.

Demand is strengthening most-ly because US coatings producers are ramping up production for the busy spring and summer seasons.

“Demand last year started un-seasonably early,” the producer said. “This year we’re expecting it to stair-step and start a little later.”

However, that strong demand could face destruction from high prices, especially as upstream

propylene values are falling.“This level is the classic tip-

ping point for this market,” a buyer said. “I think this increase will go through, but [it’s likely] another one wouldn’t.”

Market sources agreed that most demand from the coatings market is coming from the remod-eling of existing homes and some new construction.

Additionally, February acetone contracts increased by 4.5 cents/lb month on month, adding strength to March MMA price initiatives. ■

€/tonne, contract FD WE

EUROPE FLEXIBLE POLYOL PRICES

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Mar2013

Mar2012

Cents/lb, contract FD railcar

US MMA PRICES

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US MMA prices expected to increase in MarchINTErMEDIATES john dIetrICh hoUSton

ICB_250313_020-021 20 20/3/13 15:46:02



Second chance for refiners on the US east coastMARKET OUTLOOK P32

US March acrylic acid and acr-ylate esters contracts are begin-ning to settle up but are lower than levels sought by producers, sources confirmed on 14 March.

The major sellers have each pro-posed March hikes of 6-7 cents/lb ($132-154/tonne, €102-119/tonne) on February feedstock pressure

February chemical-grade pro-pylene (CGP) increases of 6 cents/lb are driving the March acrylates momentum, but persistent soft demand is weakening suppliers’ chances for a full settlement.

“I am seeing March acrylates settle at plus 4-5 cents/lb,” a

buyer said. “And, with propylene falling off a cliff for March, it’s going to be fun negotiating prices for a change. I expect to get all of this increase back in April, and hopefully a little more.”

EARLY DAYSHowever, at least one seller in-sisted that is too early to tell how successful the pushback will be. The producer also said there has been less resistance than it ex-pected, given continuing softness from the coatings sector.

Although two buyers said de-mand from the adhesives sector

has improved after a weak Janu-ary, other sources said full-year demand growth there is unlikely to exceed estimated GDP of 2-3%.

Paint makers say architectural coatings demand is still lagging year-ago levels, but some sources

remain optimistic that demand will pick up soon despite the delay to the spring coatings season partly because of inclement weather.

February glacial acrylic acid (GAA) is in a range of $1.19-1.23/lb, as assessed by ICIS. ■

$/lb, contract FD

US ACRYLIC ACID PRICES

1.10

1.15

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1.25

1.30

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Mar2012

European ethanolamine prices are steady-to-firm moving from February to March, but supply remains ample for most grades and demand relatively flat from most derivatives, sources said.

One seller of monoethanolanine (MEA), diethanolamine (DEA) and triethanolamine (TEA) said its March prices are the same as Feb-ruary. “We’ve seen no changes [in price] to previous weeks. It’s very quiet and we expected after the ethylene settlement that eth-anolamine prices would increase,” the seller said on 13 March.

The March ethylene contract settled at a €50/tonne ($65/tonne) increase from the previous month.

For March, the seller quoted MEA at €1,380-1,440/tonne FD (free delivered) NWE (northwest Europe), TEA was quoted at €1,400/tonne, with DEA at €1,080-1,200/tonne.

AvAiLAbiLitY poSitivitY“There are no availability prob-lems, I see the market more long than short. Even with a producer having problems there has been no impact on the market,” it added.

Others felt no major surge in de-mand but believed any length felt in January and February had evap-orated. Sources agreed the second quarter typically brings the great-est demand, particularly for ester-quats (clothes softener) and any-thing construction-related.

“We announced to our custom-ers an increase of €50-75/tonne [for March],” a major producer said.

It said its March MEA price was “on average” €1,540/tonne FD NWE, with DEA €25/tonne above this price. Its lowest offer for TEA was now €1,200/tonne, it added.

Looking ahead to April, the pro-ducer said: “We will be firm on prices. Quarter two is always a strong quarter. MEA and TEA go into places where demand is better. People buy more fabric softener and construction only works when the weather is getting better.”

A third seller of ethanolamine said it expects to see prices in-crease in April due of various outages taking place and because demand is typically at its strong-est in the second quarter.

The selling source said its March prices were similar to February, al-

though it saw TEA above €1,200/tonne. It said the increase in the fee of feedstock ethylene oxide (EO) had helped its business.

“What helps us most is the EO situation. The increase in the con-tract fees has applied more pres-sure,” the producer said.

RECoRD Eo HiGHSThe March EO contract price as-sessed by ICIS increased by €41/tonne, reaching a record level at the high end of ranges for northwest Europe and the Mediterranean.

March contract prices were as-sessed at €1,429-1,596/tonne FD NWE and €1,484-1,641/tonne FD Med (Mediterranean).

Major German producer BASF will shut down its 500,000 tonne/year feedstock EO plant in Ant-werp, Belgium, for the first three weeks of May for planned mainte-nance. This will mean halting eth-anolamine operations, but BASF was unable to give exact dates.

INEOS Oxide also has EO out-ages planned: in late April at its 420,000 tonne/year plant in Ant-werp, and at its 220,000 tonne/year plant in Lavera, France, in June. ■

€/tonne, monoethanolamine, contract FD NWE

EUROPE ETHANOLAMINE PRICES

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intERmEDiAtES larry terry houston

us acrylates initiatives weaken on soft demand

intERmEDiAtES julIa meehan london

Europe ethanolamines steady-to-firmlooking ahead to the second quarter, sources agree this is typically the strongest time of year for demand

ICB_250313_020-021 21 20/3/13 15:46:05



US-based midstream company Williams will proceed with plans to build and operate an on-purpose propylene plant in Al-berta, Canada.

The propane dehydrogenation (PDH) plant will have a capacity to produce 1.1bn lb/year (500,000 tonnes/year) of polymer-grade propylene (PGP), the company said. In addition, the capacity could be doubled in the future.

Williams expects the plant to cost $900m (€693m), and opera-tions to start in the second quarter of 2016. The plant will be close to Williams’s Redwater fractionation plant near Edmonton, Alberta.

Redwater’s fractionation opera-

tions are being expanded to pro-duce about 5m bbl/year of propane and 280m lb/year of propylene from offgas derived from Alberta’s oil sand production. The Redwater operations, in fact, will be the pri-mary source of propane for the on-purpose propylene plant.

GULF COAST TARGETThe resulting propylene will be sent to petrochemical plants along the US Gulf Coast, Williams said. The company expects the PGP will be among the lowest-cost PDH-sourced monomer in North America.

Meanwhile, the company is ex-ploring the development of new

propylene markets for its produc-tion in Alberta, the company said.

The plant will use Oleflex process technology, provided by Honeywell’s UOP, Williams said.

“We’re thrilled to be moving full-speed ahead on Canada’s first and only PDH facility. The project fits strategically within Williams’ operations in Alberta, leverages our expertise in propylene and adds further value to a byproduct of oil sands upgraders,” said David Chappell, president of Wil-liams Energy Canada.

“Once operational, this new propane dehydrogenation facility will expand market opportunities for Canada, feed the demands of

North America’s growing petro-chemical industry and allow for the creation of a new value chain in Alberta,” he added.

RETURn On invESTmEnTWilliams CEO Alan Armstrong said: “We expect the PDH facility to deliver a very attractive return on investment as well as provide a long-term natural hedge of the propane volumes we control in our Canadian offgas processing business. Our planned PDH facil-ity will enable Williams to capture the full value between natural gas and polymer-grade propylene rather than just the value between natural gas and propane.” ■

Williams set to go ahead with PDH plant in AlbertapROjECTS al greenwood Houston

Asia’s butadiene (BD) prices may drift below $1,800/tonne (€1,386/tonne) this month after a 9% slump the week ended 8 March, as supply outstrips demand be-cause of a weak downstream syn-thetic rubber market, industry sources said.

On 8 March, spot prices were assessed at $1,860/tonne CFR (cost and freight) northeast (NE) Asia, down by $190/tonne or 9% from the previous week, accord-ing to ICIS.

Demand has remained sub-dued, much to the chagrin of trad-ers that had stocked up on BD ear-lier in anticipation of a resurgence in Chinese demand after the week-long Lunar New Year holiday. The key China market was on holiday from 9-15 February.

COnSUmERS RETREATInstead, major BD consumers – the synthetic rubber producers – retreated to the sidelines after the Lunar New Year, forcing traders with BD stocks in hand to cut their prices below $1,900/tonne CFR NE Asia in the week ended 8 March to draw buying interest, industry sources said.

“There are more cargoes chas-ing too few customers, so traders were forced to [lower] the BD prices if they wished to attract buyers,” an industry source said.

BD is a raw material used in the manufacture of synthetic rubbers, which go into tyres for the automotive sector. A sluggish global automotive market has weakened demand for synthetic rubbers and consequently, for raw material BD.

In February, car sales in China and India have fallen. China is the world’s largest automotive car market, while India is an emerging

market for automotive makers.Major car makers, including

General Motors, Honda Motor and Mazda Motor reported lower sales in China last month, while Maruti Suzuki and Tata Motors reported steep falls in sales in India in the same period.

hikES RESiSTEdIn light of the weak macroeco-nomic conditions, synthetic rub-ber producers, in particular, the butadiene rubber (BR) makers, have been finding it difficult to raise prices amid a strong resist-ance from the tyre makers.

Asia BR makers have attempt-ed to hike offers to $2,700-2,800/tonne CFR NE Asia but have been unsuccessful.

Prices have stayed at an average of $2,600/tonne CFR NE Asia since 28 February, ICIS data showed.

Falling prices of natural rubber (NR) – a substitute product for BR in making tyres – are adding to the woes of BR producers. NR prices have declined by more than $200/tonne since early February.

SMR 20 NR prices were at $2,900/tonne FOB (free on board) Malaysia at the Malaysian Rubber Exchange on 11 March, down from $3,130/tonne FOB Malaysia on 6 February.

pOOR dEmAnd OUTLOOkDemand for neither synthetic rubber nor natural rubber is ex-pected to pick up significantly, given the weak economic condi-tions across the globe.

Europe is still mired in a debt crisis, while the US trying to bol-ster its fragile economy.

“It is going to be a difficult year, given the uncertain global market outlook, and we will adopt a cau-tious stance,” a tyre maker said. ■

OLEFinS helen yan singAPore

Asia Bd price slump may continueButadiene prices plunge and the downturn may not be over as the downstream synthetic rubber market is weak

$/tonne, CFR NE Asia

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ICB_250313_022-023 22 20/3/13 16:01:46



BASF and Dow Chemical’s methyl di-p-phenylene isocyanate (MDI) facilities in northwest Europe will run at reduced operating rates dur-ing March and possibly until the end of April respectively because of ongoing feedstock constraints, according to company sources.

Output at Dow Chemical’s MDI facility at Stade, Germany, which has capacity to produce 200,000-220,000 tonnes/year has been re-stricted over the last few months.

Reduced MDI operating rates at Stade are expected to continue until upstream maintenance is carried out at the company’s other site, scheduled for April.

“We don’t expect any ramp-up at [the MDI plant in] Stade until May,” said a Dow source.

BASF’s unit at Antwerp, Bel-gium, whose nameplate capacity of 560,000 tonnes/year makes it the largest MDI unit in Europe, has run at reduced rates since Febru-ary, for upstream-related reasons.

Planned maintenance is also expected at Huntsman’s MDI op-erations at Rozenburg, the Neth-erlands, in mid-March for around four weeks. However, this has not been officially confirmed.

The combined MDI capacity at the Dutch site is estimated by ICIS at 400,000 tonnes/year.

The European crude MDI mar-ket is largely balanced, despite

these output constraints, as they are being weighed against ongoing low season demand from the main downstream construction sector.

One manufacturer, however, suggested the crude MDI market could tighten in March if demand seasonally improves and coincides with both planned and unplanned output constraints at European MDI plants over the next month.

ECONOMIC CONSTRAINTSHowever, some crude MDI buyers said they have not experienced any supply limitations, because demand is low, and they question the extent of any seasonal pick-up in consumption – given the ongo-ing economic constraints.

One crude MDI customer con-siders supply plentiful and said one producer affected by some output constraints is still offering volumes. However, this has not been confirmed at source.

There is some talk, however, that pure MDI availability is limit-ed, because as a by-product of MDI manufacturing, its lower yield means it is more affected by out-put constraints than crude MDI.

Consumption for pure MDI is reasonable to seasonally healthy. MDI March settlement informa-tion has so far shown rollovers to increases of €20-75/tonne ($26-97/tonne). ■

€/tonne, contract FD WE

Crude MDIPure MDI

EUROPE MDI PRICES

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ISOCyANATES heIdI fInCh london

BASF, Dow reduce MDI output in MarFacilities in northwest Europe to run at reduced rates during March and April on lack of feedstock

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3.375X9.6875_GPC_alcohol_industrialNEWlogo.indd 1 9/29/10 3:42 PM

ICB_250313_022-023 23 20/3/13 16:01:48

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Confidence shines outAFPM SUPPLEMENT

Styrene butadiene rubber (SBR) prices fell during the week in Asia as plunging feedstock butadiene (BD) prices, abundant supply and weak demand forced traders to sell off their stocks at sharply reduced prices, industry sources said.

Non-oil grade 1502 SBR prices were at $2,350-2,450/tonne (€1,809-1886/tonne) CIF (cost, freight, insurance) China on 13 March, down by $50-100/tonne from the previous week, accord-ing to ICIS data.

Chinese domestic non-oil grade 1502 prices fell by yuan (CNY) 1,000/tonne ($161/tonne) to CNY16,000/tonne EXWH (ex-warehouse) during the week, ac-cording to Chemease, an ICIS service in China.

high inventories“Things are really bad. There is no demand for SBR, as everyone is holding high inventories, in-cluding traders, producers and tyre makers,” a producer said.

“We may cut the operating rate of our SBR plant in the second quarter to 70-80% capacity, as demand is really weak,” the pro-ducer added.

The sharp fall in SBR prices was triggered by the plunging feedstock BD costs, industry sources said.

Feedstock BD prices fell by 9%, or $190/tonne, from the previous week to $1,860/tonne CFR (cost and freight) northeast (NE) Asia on 8 March, ICIS data showed.

BD is a major raw material in SBR, making up around 70% of its composition and production costs.

In view of the plummeting BD prices, traders have quickly liqui-dated their SBR stocks as they fear further price declines.

The clearing out of SBR stocks was also fuelled by recent weak economic data from China, which showed slowing industri-al production growth and flag-ging retail sales in the world’s second largest economy.

China’s industrial output had the weakest start to a year since 2009, showing only a 9.9% growth for January-February, compared with 10.3% in Decem-ber last year.

sales growth slowsMeanwhile, Chinese domestic retail sales growth fell from 15.2% in December to 12.3% in January-February.

Figures for January-February are combined to even out the im-pact of the Lunar New Year holi-day, which fell on 9-15 February in China this year. This ensures consistency when comparing with past years’ figures.

Meanwhile, the high inventory levels of natural rubber (NR) and SBR at warehouses at Qingdao in

Shandong province are adding to the woes of SBR producers.

“It will take about two months for the [NR and SBR] stocks to clear, as demand is really weak,” an industry source said.

NR and SBR are substitutes for each other in the production of tyres in the automotive industry, so their prices tend to have an im-pact on each other.

SMR20 NR prices closed at $2,790/tonne FOB Malaysia at the Malaysian Rubber Exchange (MRE) on 13 March, down by $340/tonne from 6 February, when prices were at $3,130/tonne FOB Malaysia.

“Market sentiment is weak and the second quarter may be worse than expected,” another industry source said. ■

$/tonne, non-oil grade 1502, spot CIF China

ASIA SBR PRICES

2,000

2,500

3,000

3,500

Mar2013

Mar2012

petrochemicals Helen Yan singApore

asia sBr prices fall on lower BDFeedstock BD prices fell by 9%, or $190/tonne, from the previous week to $1,860/tonne CFr ne Asia on 8 March

IndianOil’s joint venture styrene butadiene rubber (SBR) plant at Panipat, Haryana, is due to start operations in August.

“The plant is likely to run at around 60% for three months after which operations will be ramped up to 80%. We are likely to see full operations in Q1 2014,” said Siddhartha Mitra, executive director for petrochemicals at In-dianOil, on the sidelines of the Petrochemical Conclave in Gur-gaon organised by the company.

The 120,000 tonnes/year plant is a joint venture between Indi-anOil, TSRC, of Taiwan, and Marubeni Corp. It will have two lines, each with a 60,000 tonne/year capacity.

“The plan is to sell the entire volume in the domestic market. We have already started discus-sions with tyre manufacturers,” he added.

As the product approval proc-ess at tyre companies is likely to take time, the joint venture will initially sell higher volumes to the non-tyre sector.

Feedstock butadiene would be sourced from IndianOil’s naphtha cracker at Panipat while styrene would be imported.

“We have the potential to pro-duce 140,000 tonnes/year of buta-diene at the Panipat cracker, we will initially use about 80,000 tonnes/year at the SBR plant and sell the balance locally or export,” said Mitra.

In the longer run, the joint ven-ture also plans to add a third SBR line of 60,000 tonnes/year.

“IndianOil’s board has cleared this investment, we are now wait-ing for the partners to secure board approval,” he added. ■additional reporting by Prema Viswanathan

indianoil sBr joint venture to start up in Augustprojects malInI HarIHaran gurAgon, inDiA

IndianOil has started discussions with local tyre manufacturers

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ICB_250313_025 25 20/3/13 15:40:52


regardless of whether the compound is a blend of nylon 6 and nylon 6,6 or whether it is reinforced with glass fibres or carbon fibres. LANXESS’s Durethan A polymer is based on nylon 6,6, while its Durethan B is based on nylon 6.

Because of its knowledge of the compounds’ performance, LANXESS can model the part through computer engineering, Dooley said. That will give the OEM industry the confidence to switch from metal to plastic.

MEXICO AUTO GROWTHMexico’s large automobile industry will continue growing quickly in the upcoming years, increasing the demand for plastics, said Dooley.

The industry has already been seen to have recovered from the recession. In 2012, automobile production reached its highest level since at least 2008, accord-ing to the Asociacion Mexicana de la Industria Automotriz (AMIA), a trade group that repre-sents automobile producers.

Many of the vehicles produced in Mexico are exported. Mean-while, Mexico’s light vehicle sales reached 987,747 in 2012, up 9% year on year, according to the Asociacion Mexicana de Dis-tribuidores de Automotores (AMDA), a trade group represent-ing auto distributors in Mexico.

2012 was the third best and strongest year since 2008, ac-cording to AMDA.

Automobiles are a major consumer of chemicals. The American Chemistry Council (ACC) estimates that each vehicle contains an average of $3,297 worth of chemicals, such as acrylo-nitrile-butadiene-styrene (ABS), nylon and polycarbonate (PC).

LANXESS expects demand for its products from the Mexican au-tomobile industry to grow by dou-ble digits in the next 3-5 years, Dooley said. “The trend will con-tinue. We are seeing more and more investment in Mexico.” ■


pOlyMERs al greenwood Mexico city

Automotive use of nylon could growLANxeSS director expects further growth in use of nylon to replace metal in vehicles

“We see quite a bit of opportunity in the auto industry, particularly in the body or the space frame of the vehicle”bREndAn dOOlEy Director of sales and OEM development, LANXESS

stricter emission regulations as lighter vehicles consume less fuel, he added.

This trend towards lighter ve-hicles could lead to nylon substi-tuting more parts in an automo-bile, Dooley said. “We see quite a bit of opportunity in the auto in-dustry, particularly in the body or the space frame of the vehicle.”

In addition, companies are de-signing automobiles with smaller engines, Dooley said. To get more power out of a smaller engine, au-tomakers are putting turbo charg-ers on the engines. That, in turn, is increasing demand for high-temperature turbo ducts.

plAsTIC TURbO dUCTsNormally, those ducts would be made from metal, Dooley said. However, LANXESS is replacing them with plastic.

LANXESS is also researching more applications for nylon com-pounds. Such applications, how-ever, will not come from simply replacing metal with nylon.

Instead, such innovation will come from knowing how nylon compounds will behave in a par-ticular application, Dooley said,

lanXeSS’s Durethan polyamides can with-stand high pressure

Nylon compounds, which have already replaced metal in several automobile parts, still have much room to grow as the raw material for vehicle components, an exec-utive at German specialty chemi-cal producer LANXESS said.

Nylon compounds are resistant to both heat and grease, making them an ideal material for compo-nents under the car’s hood, said Brendan Dooley on the sidelines of the Plastimagen 2013 plastics conference in Mexico City.

Dooley is the director of sales and OEM (original equipment manufacturers) development as well as manager for the NAFTA (North American Free Trade Agreement) region for LANXESS’s high-performance materials in Mexico.

FAbRICATIOn AdVAnTAGENylon is a popular raw material because it performs well, lowers a vehicle’s weight and is less expen-sive than metal, Dooley said. Auto producers can save money, be-cause it is much easier to fabricate parts using nylon compounds in-stead of metal, he added.

For example, metal threading requires special and expensive ma-chining. For nylon, those threads can be moulded, Dooley said.

Because nylon parts are easier to fabricate, they can be made at a greater degree of precision than metal parts, Dooley said. This improves the alignment of parts such as headlights throughout the automobile.

Nylon parts can also absorb more energy than metal during crashes, making automobiles safer, Dooley said. Nylon absorbs vibrations as well, making auto-mobiles ride smoother and quiet-er, he added.

Meanwhile, nylon compounds can significantly reduce the weight of a vehicle, especially if they replace the parts made with steel, Dooley said.

Automobile makers are eager to lower the weight of their vehi-cles, so they can comply with LA

Nxe

SS

ICB_250313_026 26 20/3/13 15:39:19

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market outlook innovation

TRACY DANG HOUSTON

Demand is growing rapidly for new technologies in 3D printing that use polymers such as acrylonitrile-butadiene-styrene (ABS), polycarbonate (PC) and polyamide

Polymers in 3DStratasys equipment can create customised pieces such as this turbine

Imagine a car with a frame that was built by depositing thin layers of composite mate-rial until they are fused into a solid, or a robot with parts that were made by a spe-

cial machine that makes three-dimensional “prints”. How about prosthetics or implants created with such precision that they can be customised for each individual?

It has all been accomplished recently with additive manufacturing, more commonly known as 3D printing.

Additive manufacturing is the process of joining materials, usually layer upon layer, to make objects from 3D model data, typically by using computer-aided design (CAD) software.

It is a rapidly growing industry with a compound annual growth rate of 29.4% in 2011, according to Wohlers Associates, a consulting firm that specialises in additive manufacturing. Associate consultant Tim Caffrey said the firm does not have 2012 fig-ures, but the additive manufacturing indus-try sold more than $1.7bn (€1.3bn) in prod-ucts and services in 2011.

3D printing is changing the way products are designed and manufactured, particularly through traditional subtractive methodolo-gies, Wohlers Associates said.

“It’s better for the environment because it reduces waste,” said Jeff DeGrange, vice presi-dent of Stratasys, which owns an industrial line of 3D printers.

“With additive manufacturing, you only use as much material as you need for the part you’re printing,” DeGrange said. “But with machining, you’re shaping objects by remov-ing material from a larger block until you

Stra

tasy

s

ICB_250313_030-031 30 20/3/13 15:30:54

www.icis.com 25 March-7 April 2013 | ICIS Chemical Business | 31

market outlook innovation

modify these polymer feedstock materials,” Stonecash said. “I have a very limited range in type of materials used for rapid prototyping. For example, with ABS, you want to touch and feel it, but you don’t want to drop it.

“Now that they have gotten better with this technology, they can use different types of materials – stronger plastics that melt at high-er temperatures – and you can use it for some-thing rather than just a model,” he added.

PolyOne will “scale up” the polymer feed-stock and develop engineering materials that can be used to create prototypes and produc-tion parts.

The company currently sells resin formula-tions and colour additives for producing pro-totype parts for polycarbonates, ABS and polylactic acid applications.

“We are now moving toward the produc-tion of engineering polymers to be used in the production of manufactured parts,” Hughes said. “Resin formulations being developed in-clude nylons [polyamide], high-temperature polymers like PEEK [polyetheretherketone], polyetherimides [PEI] and polyimides [PI].”

In addition, Stratasys will integrate the new material into its additive manufacturing sys-tems, and Rapid Prototype Plus Manufactur-ing (RP+M) will handle the manufacturing.

“The push behind this is with the materials that can be used for parts in the aerospace in-dustry. You lose a lot of money to create a $20,000 tool to make a couple of hundred parts,” said Patrick Gannon, a spokesman for RP+M. “From that perspective, it doesn’t make any sense. If we can find a material [that can be used in 3D], we have a huge market out there for companies that are looking for that sort of thing.”

Additive manufacturing recently made head-lines when US President Barack Obama men-tioned it in his state of the union address on 12 February. He said it is a priority to make the US a magnet for new jobs and manufacturing.

The National Additive Manufacturing Inno-vation Institute (NAMII) is a pilot centre estab-lished in August 2012 in Youngstown, Ohio, to accelerate such technologies in the US and in-crease domestic manufacturing competition.

The NAMII is the first of up to 15 institutes in the National Network for Manufacturing In-novation (NNMI), a $1bn initiative announced by Obama in March 2012 that will help inte-grate capabilities, focus enterprise and address

have the desired form, so there is a good bit of wasted materials.”

Additive manufacturing can also save “im-pressive amounts of time and money” when used correctly, Wohler Associates added.

EVOLVING INDUSTRYThe concept has been around since 1984 when Charles Hull developed the technology. He later founded 3D Systems, which pro-duced the first commercial 3D printing ma-chine. In 1988, the company developed the first version for the general public.

“Prototyping is touchy-feely, and it gives customers a model rather than a complicated engineering design,” said Jared Stonecash, an engineer in composites manufacturing and testing at the University of Dayton Re-search Institute (UDRI) in Ohio. “It’s some-thing they can physically put in their hand.”

Also, 3D printing allows organisations to cre-ate a prototype without the investment in the tooling equipment used to create the model.

“Once the investment is made, it is very dif-ficult and very expensive to make design changes to the model,” Stonecash added. “3D printing is a much simpler, much easier way to fine-tune your parts by 3 degrees or raise the ceiling by an inch.”

But 3D printing technology has come a long way from its early days of making mod-els and prototypes.

“In this next horizon, providers are ena-bling engineers to design parts on their com-puter and then create the physical part using the same digital data,” said Thomas Hughes, program director for open innovation at Poly-One, a formulator and provider of specialised polymer materials.

“Instead of merely printing a picture of the design, they are able to ‘print’ an actual pro-duction part for use in an automobile, jet en-gine, operating room or other application,” Hughes said. “Another option is to ‘print’ the tooling required to mass-produce parts.”

FUNDED RESEARCHThe additive manufacturing industry is al-ready advancing in leaps and bounds, but companies and research centres are exploring new innovations and applications to progress the technology even further.

UDRI is trying to find a specialised mate-rial that can be used to “print” an actual working part that would be installed in a new aircraft engine.

In July 2012, UDRI was awarded a $3m grant from state technology-based economic development programme Ohio Third Fron-tier. It will work with several other companies to develop aircraft engine components, as well as other parts in the aerospace and auto-motive industries.

“What we’re looking to do is change or

Let our dedicated newswire keep you updated on the latest chemical news, including com-pany performance at icis.com/news

“We are now moving towardthe production of engineeringpolymers to be used in… manufactured parts”THOMAS HUGHES Program director for open innovation, PolyOne

challenges in advanced manufacturing.“A once-shuttered warehouse is now a state-

of-the-art lab, where new workers are mastering the 3D printing that has the potential to revolu-tionise the way we make almost everything,” Obama said his state of the union address.

THE FUTUREThe industry is expected to continue to grow very quickly, Caffrey said. “We try to be rela-tively conservative in our forecast, but the sale of products and services worldwide is expect-ed to grow to $3.7bn in 2015,” he said. “In 2019, the industry will be over $6bn.”

Caffrey added that the personal 3D printer business, which includes systems under $5,000, has been growing at a very fast pace, possibly increasing by more than three times in 2011.

“The personal 3D printers are only 5% of total revenues,” Caffrey said. “So in the last five years, it has gone from almost nonexistent to being quite large.”

The availability of these systems, for both industrial and personal uses, allows just about anyone to create their own model or product.

“If you can design something, you can build it – there’s no additional cost in com-plexity,” Caffrey said. “With 3D printing, making a single custom product is no more expensive per unit than making 10 or 100.”

While it is now possible to make a million car frames or plastic cups using a 3D printer, Caffrey said it will more likely be used in ap-plications that require customisation, such as personalised jewellery and promotional prod-ucts or even medical implants and prosthetics.

However, it could also be used for mass production – in hundreds as opposed to mil-lions – of more expensive parts such as aero-space components.

“There are some novel downstream bene-fits from that concept, like making lightweight parts for airplanes, where you can take a lot of weight off and save a ton of money in fuel,” Caffrey said. “Several things like that you can’t do with conventional manufacturing.”

Whatever the customer intends to make, whether it is a plastic product intended for use in the home or a small production line of auto-mobile parts, the possibilities are endless.

“We like to use the analogy that 20-30 years ago, there weren’t any [personal computers] and no Internet,” Caffrey said. “Yet, here we are. We have smart phones and have little elec-tronic devices that play movies in colour.”

“With 3D printing, we don’t necessarily know where it’s going and what the next ap-plication is going to be,” he added. “But the modifications are going to grow, and new ap-plications will be developed.” ■

ICB_250313_030-031 31 20/3/13 15:30:55

market outlook shale gasSign up to receive free ICIS updates by email, tailored to the markets you are interested in. Visit icis.com/keep-in-touch

AMY FAULCONBRIDGE T.A. COOK CONSULTANTS

The shale gas boom and private equity investment are revitalising refineries on the US eastern seaboard. What will the impact be on propylene production?

Second chance for refiners on the US east coast

The shale oil and gas boom in the US has been widely reported and ana-lysed, especially when it concerns the issue of US energy independence.

Fears about energy dependence on the Middle East underlined a deep insecurity in Washing-ton about future energy resources.

Such angst has been exacerbated by ageing US infrastructure, which has kept domestic oil in Cushing, Oklahoma – the US oil storage

hub – and has drawn a kind of wall across the US from Detroit to New Orleans. Heavy crude produced in Canada has not been able to reach the US east coast because the pipelines to carry it simply do not exist, creating a bottleneck in Cushing.

As a result, east coast refineries have been forced to import Brent crude from Europe and north Africa – a lighter crude that requires dif-ferent technology and produces different co- and byproducts.

Brent crude owes its name to the Brent field in the North Sea where it is produced, but the

term is now used generically to describe the crudes deliverable to the Brent futures contract, long considered the world’s oil benchmark.

As oil has flowed into Cushing, the lack of pipeline infrastructure has caused oversupply of the domestic West Texas Intermediate (WTI) crude, forcing prices to drop drastically against Brent, and creating a sharp difference in price between the two contracts – the WTI/Brent spread.

At the end of 2011, the spread had reached $28/bbl, although it had decreased to $19/bbl at the end of 2012.

East coast refineries are already equipped to process lighter, sweeter crudes, such as those produced from shale

ICB_250313_032-033 32 20/3/13 15:34:40

25 March-7 April 2013 | ICIS Chemical Business | 33

market outlook Shale gaS

Alam

y

Even with that spread decrease, east coast refineries have been long forced to pay a pre-mium for Brent, putting them at a competitive disadvantage against midland refiners that can easily access cheap WTI crude.

And then there is the reversal of the 500-mile Seaway pipeline, which now runs from Cushing to the US Gulf Coast. Gulf Coast re-finers are now able to access heavy crudes, which their plants are set up to handle, still at a discount against Brent.

Whether the opening of Cushing stocks will have the effect of balancing out the price of WTI against global markets is still unclear, however. “This is widely debated. We might still have WTI being heavily discounted against Brent as the US can’t export crude due to legislation,” said Anthony Pears and Stefan Glassel, analysts at global commodities trad-ing house Trafigura.

“A lot of Gulf Coast refineries have made changes to be able to run more heavy, sour crude, so they will need to be incentivised to shift back to the light, sweet shale crudes that are building up.”

KNIGHTS IN SHALE ARMORIn the meantime, the effects of such a disad-vantage on the east coast have been drastic. Only last year, Sunoco announced that it would sell its Philadelphia and Marcus Hook refineries, while ConocoPhillips moved to close its Trainer, Pennsylvania, refinery.

Enter shale. Because shale crude is lighter and sweeter, investigations into whether it can be used in refineries along the east coast – already set up for processing light Brent – have sparked acquisition interest, and not only from private equity.

Delta Airlines purchased the Trainer refin-ery in June, and plans to spend $100m on it in order to optimise jet fuel production.

Meanwhile, private equity firm The Carlyle Group announced it will take a two-thirds stake in Sunoco’s Philadelphia refinery. Fur-ther inland, TPG Capital joined three other private equity firms to buy the majority of Marathon Oil’s assets in Minnesota.

At the same time, oil companies have begun to bring domestic shale east by rail then ship it down the coast, while Carlyle Group is building a high-speed rail facility so that the Philadelphia refinery can receive it.

This would provide east coast refineries with enough access to cheaper domestic sup-ply to allow them to move away from depend-ence on more expensive Brent from Africa and Europe. Such a move could produce quite impressive margin improvements.

PETROCHEMICAL TWISTAnother aspect to east coast refinery regenera-tion is the effect that shale processing has had on the petrochemical industry, specifically with regard to propylene production.

Propylene is used as a feedstock to produce a number of other olefins used in the automo-tive, construction, packaging, medical and electronics industries.

Historically, propylene has been produced as a co-product of heavy liquid cracking. However, the increased processing of shale – which also produces natural gas liquids (NGL) – has meant an increase in propane availabil-ity, causing prices to decrease. Over the last year, the price of propane has decreased from $2.87/gal to a current $2.48/gal, after a low in October 2012 of $2.37 per gallon.

US propylene supply declined in the first quarter of 2012 to 6.5m lb/day, 8.5% less than the first quarter of 2011, largely due to the fact that cracking the cheaper, lighter feedstocks produces significantly less propylene co-product than cracking heavy liquids does.

A number of companies are rushing to fill that demand gap – among them PetroLogis-

tics, which uses propane to produce propyl-ene via dehydrogenation. If the companies behind pipeline and infrastructure expansion have their way, refiners on the east coast could gain access not just to cheap domestic feedstock, but also to a high-demand propyl-ene market, both domestically and abroad.

THE EXPORT CONUNDRUMWhile all of the above factors point towards a marked regeneration of east coast refiners and their margins, it may not all be smooth sailing.As the US is producing shale to such a large, somewhat unexpected extent and NGL prices are low, calls for restrictions on the export of liquefied natural gas (LNG) have created a po-litical minefield, both in the US and globally.

How much LNG should be exported, and the effect that it would have on domestic prices, competitiveness and margins has yet to be clarified.

Considering Japan is also one of the world’s largest buyers of LNG, it should per-haps not come as a surprise that Japanese Prime Minister Shinzo Abe requested the right to import US shale gas when he met US President Barack Obama in February.

Meanwhile, BASF announced its enthusi-asm for shale gas production in Germany, aware of the competitive advantage the US could develop over Europe should feed-stock prices remain comparatively high in the eurozone.

RELENTLESS COST CONTROLAmid such market fluidity, the only way re-fineries can protect themselves and add mo-mentum to the recent regeneration is via rigid cost control.

“Operators must squeeze every dollar out of their cost structure. Proper management of the big levers such as contracted costs, labour productivity and material spend are all impli-cated by the shale boom,” says Dirk Frame, managing partner at T.A. Cook Consultants.

“Refiners cannot sit back and hope to ride the wave without contributing to it. Made in America requires petrochemical sites to look hard at their operating practices and question long-standing assumptions relating to the ef-fectiveness and efficiency of processes gov-erning maintenance, shutdowns and capital expenditure,” he adds.

The outcome of the US-EU trade talks, Japan prime minister Abe’s request and the ef-fect shale development will have on global oil and chemical markets remains to be seen. But for the moment at least, it looks as if the east coast has been given a second chance. ■

Amy Faulconbridge is communications manager, consulting at T.A. Cook in Berlin. Since 2006, she has provided strategic communications advice to cli-ents in consulting and private equity.

Oil companies have begun to bring domestic shale east by rail then ship it down the coast, while Carlyle Group is building a high-speed rail facility

ICB_250313_032-033 33 20/3/13 15:34:42

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SHALE GAS REVIVAL

CONFIDENCE SHINES OUTProducers believe issues of midstreaminfrastructure, manpower shortagesand LNG export are not game-breakers

International Petrochemical Conference 2013

Publication prepared by

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volume 279 number 0000 mARCH 2013

march 2013 | AFPM Supplement | 3

units and pipelines need to be put in place to get them to customers

olefins And polymeRs fACe up to soft demAnd

28 Pricing and margins are not the main issue, as feedstocks are cheap, but sluggish demand growth raises the question of where all the new output will go

ReCRuitment poses new CHAllenges

32 With demand for engineers, managers and plant workers booming as expansion gets underway, companies are having to re-evaluate recruitment practices

Afpm suite listing 34 Where to find company suites at the

International Petrochemical Conference in San Antonio

RoAd bloCks AHeAd foR sHAle RevivAl?

4 The uS government must clear the way for low-cost energy and expansion in petrochemicals to boost manufacturing

pRoduCeR ConfidenCe is still stRong

8 Leading north American petrochemical executives remain in bullish mood

sHAle gAs dRives petRoCHemiCAl RevivAl

18 Producers continue to develop plans for a wave of new ethylene capacity and downstream units in north America

midstReAm investment RequiRed foR pRogRess

24 before petrochemical producers can exploit shale oil and gas fully, refineries, extraction

Editor John baker+44 20 8652 [email protected]

ICIS contributors Cynthia Challener, Joe Chang, bobbie Clark, Tracy Dang, John Dietrich, Ken Fountain, Al Greenwood, Joe Kamalick, michelle Klump, Leela Landress, Anna matherne, Jeremy Pafford, mark Yost

Production Louise murrell, Lizabeth DavisDesign Lauren mills, numa randellCopy editing Dan bloch

Americas sales managerbernard Petersen+1 646 961 [email protected]

Americas sales representative Karen Yaniro+1 212 791 [email protected], Middle East and Asia sales manager John Hill+44 20 8652 [email protected] sales representativeTom Iredale+44 20 8652 [email protected]

Product directorDavid StanworthPublishing director Chris Flook

Printing Fry Communications ICIS, The Quadrant, Sutton, Surrey, Sm2 5AS,uKwww.icis.com

©2013 by reed business Information. All rights reserved. no part of this publication may be reprinted, or reproduced or utilised in any form or by electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording or in any information storage and retrieval system without prior permission in writing from the publisher.

CommentARyJohn BAkEr [email protected]

F ive years is a relatively short span of time for the petrochemicals industry. but as industry leaders in this special publication, prepared by ICIS for the AFPm’s annual International Petrochemical Conference in San Antonio, Texas, point out, it is suffi-

cient for dramatic changes to unfold. The uS shale phenomenon, now pumping low-cost oil and gas into the uS energy

and manufacturing sectors to great competitive benefit, has turned the fortunes of the north American petrochemicals producers on their head.

only a few years ago, companies were spending capital resources to close facilities and investing more abroad than at home. now that has all changed, as more than half a dozen crackers and associated downstream units are on the drawing board. They will consume considerable amounts of ethane, which has to be extracted and delivered to the new plants, to be located mainly in the uS Gulf.

While the industry and its executive leaders are bullish (see interviews on pages 8-16), a number of issues need to be addressed. midstream infrastructure needs to be invested in and built; huge numbers of skilled and experienced workers need to be hired; and issues surrounding export of natural gas, which could drive up energy and feedstock prices, need to be addressed. The latter has certainly generated its own prodigious amount of heat recently!

on top of this, as Charlie Drevna, president of AFPm, warns (see page 4): govern-ment policy and regulation must ensure that the road to shale gas development is kept clear, so that the uS can reap the competitive advantage offered by low-cost and abundant energy and feedstocks.

In this publication ICIS editors examine the shale gas situation in detail, looking upstream and downstream. I hope you find their analysis both stimulating and useful.

“government policy and regulation must ensure that the road to shale gas development is kept clear”

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uS government must clear the way for low-cost energy and expanded petrochemicals to drive a manufacturing ren

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AFPM executive interview

4 | AFPM Supplement | March 2013

joe kamalick washington dc

Low-cost energy and expansion in petrochemicals can drive a US manufacturing renaissance, says AFPM president Charlie Drevna, but government has to clear the way ahead for the industry to grow

The US energy and petrochemical sec-tors can power the nation’s broader production industries to a major manufacturing renaissance over the

next few years, says AFPM president Charlie Drevna – if the White House will just get out of the way.

“Five or six years ago we weren’t looking for a particularly robust US petrochemicals industry,” Drevna says, referring to the years before newly abundant supplies of natural gas began to flow from shale deposits. “These shale plays have been an absolute game-changer from just five years ago.”

Before the flood of shale gas, argues Drevna, “we were expecting to see more exporting of production and jobs overseas; now companies are looking to make billions and billions of dollars worth of investments here in the US.

“I am cautiously optimistic that we can get this done, that there will be a manufacturing renaissance in the US, returning manufactur-ing to US shores,” he adds.

“In fact, I’m verging on very optimistic – simply because we don’t have a choice. This is a binary proposition: yes or no. Do we want to maintain our position as the world’s domi-nant economic force, or do we want to cede our economic prosperity to other nations?”

A lot depends on policy choices, he says. “Our new energy resources and our revived petrochemicals industry can provide a bright and viable future; there really can be a manu-facturing renaissance in the nation. But it all has to start with policies, decisions being made well before the feedstock enters a crack-er, policies around access to resources, per-mitting, fracking, and allowing industry to build things.”

Drevna believes that President Barack Obama now has an opportunity to enable a manufacturing renaissance. “How the presi-dent handles his second term will determine his legacy, and he has a chance to write his legacy with his ‘all of the above’ energy policy – but he has to acknowledge the central role that oil and natural gas will play in the eco-nomic revitalisation of the nation.”

Take two key issues, says Drevna. “One, open access to our natural resources, and two, getting these developments permitted and allowed to go forward. There have been delays, delays and more delays by those who oppose our energy development. And this is the challenge for the petrochemicals indus-try for this year and on into the second Obama administration.”

Drevna does not think that outright federal opposition – what he calls the Obama ad-ministration’s “war on fossil fuels” – can ac-tually shut down the natural gas boom and all of its downstream benefits, but persistent federal government opposition could chill the renaissance.

“The government and those that support them can present significant impediments,” Drevna says. “And once there is an impedi-ment to capital investment, then that capital

will look for opportunities elsewhere.” Jim Cooper, AFPM vice president for petro-

chemicals, points out that the government permitting authority can keep throwing road-blocks in front of energy development for years on end. Witness the nearly four-year-long US federal permitting consideration for the Keystone XL pipeline project, an approval process that is still not done and whose out-come is far from certain.

midstream investment needed“There is broad potential for midstream in-terference,” Cooper says, citing permitting for infrastructure needed to move feedstock to producers. “We have product coming out of the ground, but that feedstock has to be transited, separated, stored and routed, and that’s where there can be significant interfer-ence,” he says.

Cooper says that the need for expanding midstream infrastructure capacity in the tri-state area – Pennsylvania, Ohio and West Vir-ginia, where the Marcellus shale play is radi-cally shifting the paradigm of industry – is critical, and is critically dependent on govern-ment permitting processes.

The potential is real for a logjam crisis with

avoid shale road jams

“once there is an impediment to capital investment, then that capital will look for opportunities elsewhere”charlie drevna President, AFPM

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short-lived proposition”, referring to con-cerns that the shale gas boom might falter when private resources ultimately are de-pleted while vast reserves under federal lands remain off-limits.

He notes too that not all private sector shale gas resources are necessarily productive, and that some shale plays are “dry”, lacking the natural gas liquids that are the key feedstock for US petrochemical producers.

Can the US petrochemical sector rely on private sector shale gas resources and other existing conventional gas production for feed-stock? “Yes, we can continue for a while,” Drevna says. “But if we are going to be the dominant energy supplier in the world and the manufacturing renaissance is to be a long-term proposition, we can’t just focus on one geographical region or just one category of re-sources,” he says.

help or hindrance?“We have an opportunity to get this country off the dime and moving forward. The question is whether this administration will be a help or a hindrance. I hope Obama will look at the po-tential for a great energy legacy instead of leav-ing the nation with a $20 trillion debt.”

The potential impact of federal govern-ment policies on energy development and uses could be magnified as demand for natu-ral gas expands beyond conventional mar-kets. Electric utilities are increasingly turn-ing to natural gas as a fuel instead of coal, in no small measure because of Environmental Protection Agency (EPA) restrictions on coal-fired power generation.

There are campaigns afoot in the private sector and in Congress to encourage broader use of natural gas as a transportation fuel by switching diesel-powered truck fleets to gas by subsidising engine conversions.

And the US Department of Energy is con-sidering 20 or more permit applications from companies wanting to export liquefied natural gas (LNG) to foreign markets.

free and open marketSome in the US petrochemicals industry and downstream chemicals sector worry that a galloping troika of expanding natural gas de-mand growth – utilities, transportation and LNG exports – could trample the chemicals industry’s new-found feedstock advantage by driving natural gas prices sharply higher. But Drevna says that broadening use for natural gas is not a major concern, if “we have such an abundance of natural gas that we can sat-isfy all these additional needs – if we can en-sure that we will have open access to all the nation’s gas resources”, he says.

“At AFPM, we are always in favour of a free and open market approach, but you can’t have a truly free and open market for natural gas when gas resources are being held hostage,” he argues, referring to the vast majority of US federal lands that are off-limits to oil and gas exploration and development.

“When you look at a map of US onshore natural gas resources and what is available for production and what is not, you see that 90% of it is not available,” he says. That has to change, Drevna says. If US energy producers can have access to those resources, everything is possible.

“So if you have access to enough of the re-sources, then we can indeed compete globally with LNG exports and increase our domestic use going forward – but that depends on gov-ernment allowing domestic oil and gas devel-opment and allowing energy imports from Canada,” he says.

“This is not complicated,” Drevna says. “It’s paint-by-the numbers and connect-the-dots, it’s not that difficult to see.”

He notes that in the recent past, eastern Europe has been held hostage to Russian gas supplies and that Japan would welcome ac-cess to US natural gas exports, adding:

“We could be the dominant energy force in the world, the swing producer, the game-changer – but it all starts with production,

increasing domestic US demand for natural gas on one side and on the other side reluctance of government agencies to allow the production or delivery of that energy resource.

Drevna notes that “there will be a lot of competing interests for natural gas going for-ward and locking up 97% of the potential gas resources on federal lands could raise doubts about whether there will be sufficient supply for all interests, electric utilities, home heat-ing, transportation. And if the manufacturing renaissance is to develop, that additional manufacturing capacity will need additional supplies of energy, chiefly natural gas.

“To provide the energy framework for all those downstream consumers, we’re going to need an increasing supply of natural gas. Do we have those resources? Absolutely. But so far, it has been resources on private lands that have enabled the shale boom; private lands have been the foundation.

“But to keep moving forward, all industry needs to have the assurance of a consistent, long-term supply, to ensure that capital in-vestments are encouraged and made and jobs are created, the economy revived.”

But, says Drevna, “investors have to have some assurance that this is not going to be a

The road to shale gas development must

be kept clear

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Feat

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www.icis.com

AFPM executive interview


All events take place at the Grand Hyatt San Antonio, Texas, unless otherwise stated. All registration takes place in the Lone Star Ballroom Prefunction A

Saturday 23 March2:00pm-7:00pmRegistration

Sunday 24 March 8:00am-7:00pmRegistration

6:00pm-8:00pmWelcome receptionThe Grotto along the River (Convention Center next to the Grand Hyatt)

Monday 25 March7:30am-1:00pmRegistration7:30am-8:00amBreakfastLone Star Ballroom ABC, Second floor

8:00am-10:00amGeneral session – 17th Petrochemical Heritage Award presentationplus American Petrochemical Renaissance: A Midstream PerspectiveNGLs Market Call, with Kelly Van Hull, senior NGL analyst, Bentek EnergyUS Ethane Outlook: Will the Supply Last? with Peter Fasulla, principal, En*VantageLone Star Ballroom ABC, Second floor

Tuesday 26 March9:00am-12:00pmRegistration

10:00am-11:15am – Petrochemical ForumFuture Use of the American Shale Prosperity: A Panel Discussionwith Nigel Davis, ICIS; Daniel Brusstar, CME Group; Brian Habacivch, FellonMcCord; Ford West, The Fertilizer Institute; and David Witte, IHS ChemicalLone Star Ballroom ABC, Second floor

11:30am-2:00pmInternational Petrochemical LuncheonFeaturing George W Bush, 43rd President of the US (right)Texas Ballroom, Fourth Floor(tickets required)

AFPM IPC ConFerenCe ProgrAMMe

38th AFPM 2013 InternAtIonAl PetroCheMICAl ConFerenCe

getting it out of the ground.” These and other energy- and feedstock-related issues have energised AFPM’s new outreach cam-paign, Drevna says.

“We are expanding our outreach and en-hancing our message to local areas beyond our traditional oil and petrochemicals patch. If manufacturing drives the US economy, our industry is the engine that drives manufac-turing,” and that is the message that AFPM is trying to advance.

He cites AFPM’s recent partnership with Carnegie Mellon University’s Scott Institute for Energy Innovation as part of AFPM’s out-reach effort, designed to bring multiple ener-gy and manufacturing stakeholders into a multi-year evaluation of US energy potential and applications.

Within the partnership with Carnegie Mel-lon, Drevna says, “we’re looking at using our natural resources in a productive manner, and this discussion has just begun.

“We’re talking to state and local leaders and opinion shapers as part of an expanded effort to ensure that consumers understand and ap-preciate the value that these combined indus-tries bring to their daily lives,” he says.

He describes the effort as “an exponential increase in our outreach, drawing in other stakeholders such as academia, labour, other industries. We want to make sure that all sides are part of it.

eduCAtIon And suPPort “We all won’t agree all the time, but we all see that there is this opportunity within our na-tion’s grasp and how we can take advantage of the incredible resources provided to this na-tion in an environmentally safe and sound manner,” he adds. “We can do this, we can have this – if we have the right policies,” Drevna says.

Cooper says that the partnership with Carnegie Mellon and other energy supply chain industries “is going to be about creat-ing an education policy over the next couple of years to support advocacy. People, con-sumers have to appreciate the supply chain and the importance of what is under ground. The whole idea of the Carnegie Mellon part-nership is to write the playbook, the outline of what needs to be done over the next cou-ple of years.

“When talking of things of this magnitude, of this complexity, we want to take our time and make sure that we have a solid stakehold-er group and a way forward,” Cooper says.

Among the federal policy issues that con-front the US energy picture, Drevna says, are modernisation of the Toxic Substances Con-trol Act (TSCA) and Obama’s renewed cam-paign to try to influence climate change. In talks with congressional and other policymak-ers on how to modernise TSCA, Cooper says that it is a question of whether the whole na-ture of conversation is going to change.

tsCA reForM CAn wAItAs Drevna puts it: “We’d be in what we thought were bipartisan talks with various stakeholders and members of Congress, and we thought we were making progress. But then we’d see a draft bill that bore no resem-blance whatever to what we’d been discuss-ing with congressional staffers.”

Many in the US chemicals sector and cer-tainly among environmental groups want to see a TSCA modernisation bill passed this year if at all possible, but Cooper says that ur-gency is not necessarily a top AFPM goal. “Be-cause of the complexity involved in TSCA modernisation, we don’t necessarily share others’ urgency,” Cooper says.

“We want to see it done – but we want to see it done right the first time, rather than re-visiting the issue every couple of years,” he says. “If that means taking an extra year or two to get it right, that works for us.”

On the president’s renewed focus on cli-mate change policy and regulations, Drevna says that Obama has a choice to make. “Do we want an economic and manufacturing renaissance, or do we want to cede our eco-nomic and manufacturing prowess to China, India, Brazil, Russia and other nations,” Drevna says.

“This is another binary choice. Do you want this nation to have a broadly revived manufacturing sector and get people back to work and remain an economic superpower, or do you want to continue talking about things that sound good – alternative energy – but that in reality are not going to get us where we need to be. The president can lead us into a manufacturing renaissance – or into an abyss,” Drevna concludes. ■ Re

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“Feedstock has to be transited, separated, stored and routed, and that’s where there can be significant interference”jIM CooPer Vice president for petrochemicals, AFPM

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ECS_250313_004-006 6 14/3/13 11:00:13

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AFPM interviews


The advenT of shale gas, reviving north america’s petrochemical industry, has also created a rift between the producers and con-sumers of the fuel. energy producers, saddled with some of the world’s cheapest natural gas, want the US to allow them to export liquefied natural gas (LnG). Petrochemical producers, wary about losing their cost advantage, want the US to place some restrictions on exports, warn-ing that higher energy prices could threaten an incipient recovery in manufacturing.

exxonMobil sits on both sides of the argu-ment, as it is both the largest natural gas and chemical producer in the US. however, its mes-sage is clear. Restricting LnG exports amounts to government interference in the market, warns Stephen Pryor, president of exxonMobil Chemical. “That kind of government interfer-ence in the market is tantamount to introducing price controls on natural gas.”

Restricting exports would effectively allow the government to control supply, Pryor adds. From there, the government would indirectly control price. “any time we have allowed gov-ernment to substitute its judgement for that of the market, we get in trouble.”

The US government has meddled in natural gas markets in the past, Pryor says. “The intent of that government interference back in the 1970s and 1980s [was] about achieving reasonable prices, achieving good supply. But it never works out that way,” he says. Instead, the result created some of

john baker London

Over the next six pages, ICIS talks to eight industry leaders, giving a fascinating insight into current thinking, the investments born of renewed optimism, but also the concerns that still nag in the background

executive confidence still strong

Senior US petrochemical executives are in bullish mood – and no won-der, given the shale gas phenomenon that has transformed the sector over

the past five years. There can be no doubt that the petrochemi-

cal sector is embarking on a manufacturing renaissance, driven by access to low-cost ener-gy and feedstocks as a result of shale gas pro-duction. This is reversing many years of low investment in the US, cutbacks and closures.

As Peter Huntsman, puts it: “I don’t think there has ever been a time when the US has had such an advantage over so much of the rest of the world when it comes to petrochem-ical production. This certainly is as large a game changer as I’ve seen in the last 30 years.

“Four years ago, out of our growth capital… virtually none was in North America. We were spending more money shutting down assets in North America than we were in building or ex-panding assets [here],” he says. “Think about that. That was just five years ago. And today, well over half of our expansion capital globally is in North America.”

But the rapid pace of expansion brings its own problems to exercise executive minds. In-frastructure is needed to get the oil and gas to the petrochemical industry, based largely in the US Gulf, and skilled engineers and craftsmen will be needed, although they are at present in short supply, as well as in the wrong place.

As Peter Cella of Chevron Phillips Chemi-cal notes, the biggest challenge the petro-chemical industry is facing is ensuring it has adequate workers and resources to pursue these projects successfully.

“We’re opportunity long and people re-

source short,” Cella says. “We’re looking for more diverse and expe-

rienced hires,” he adds. “These are jobs that require some level of technical competency. Most are going to be experienced people al-ready working someplace else.”

There is also widespread concern and de-bate amongst chemical executives over the export of shale gas from the US and whether this should be allowed or not. Energy produc-ers argue they need to export to support pric-es; chemical producers do not want to see their cost advantage diminished and feed-stocks used by overseas competitors.

free trade argumentsStephen Pryor, of ExxonMobil Chemical, ar-gues that “government interference in the market is tantamount to introducing price controls on natural gas. Any time we have al-lowed government to substitute its judgment for that of the market, we get in trouble.”

And Dennis Seith of INEOS notes: “It’s hard to set limits on exporting one product when you’re arguing for open exports of others [such as crude oil].”

But others are not so sure. Dow Chemical’s James Fitterling says: “We need to be prudent [about exports].” He argues that keeping much of the newly discovered natural gas in the coun-try, both for feedstocks and energy uses, would help spur a renaissance in US manufacturing. “Five million jobs can be created,” he says.

The following pages also include inter-views with Beate Ehle of BASF, Mike McDon-nell of TPC and Grant Thomson of NOVA Chemicals, who discuss their views on shale and resulting planned investments. The pic-ture certainly is one of renewed confidence and investment. ■

Stephen Pryor, ExxonMobil Chemical

“any time we have allowed government to substitute its judgement for that of the market, we get in trouble”

Al grEEnwood hoUSTon

Pryor advises government not to interfere on Lng

ECS_250313_008-016 8 14/3/13 11:38:53


Like many major petrochemical companies, Dow Chemical is taking a cautiously opti-

mistic outlook for the industry in 2013 and the years immediately afterward. Beyond that, however, the expectation for Dow is for a healthy future for the industry.

For Dow, the optimism derives from the ad-vent of the shale gas revolution and the bene-fits it is projected to bring to US manufactur-ing. The caution, by contrast, stems from uncertainty over US fiscal policy and eco-nomic headwinds in both Europe and Asia.

James Fitterling, executive vice president with oversight for feedstocks, performance plastics and operations in the Asia-Pacific re-gion and Latin America, says Dow, through its investments in both North America and the Middle East, is well positioned to take advan-tage of the new peak in the ethylene cycle.

Fitterling says Dow expects to have a some-what better 2013 than 2012, in which the company faced the same challenges as other petrochemical majors: weakened demand across many parts of the globe – especially the eurozone with its continuing debt crisis – and slowing growth in China.

“We’re projecting 2.5 to 2.6% gross domestic product growth across the globe in 2013,” Fit-terling notes. While hardly spectacular, that incremental growth is much better than that seen in the depths of the recession. Fitterling adds that Dow expects the global economy to begin a more robust growth rate in 2014-2015.

For Dow, the shale gas phenomenon is a once-in-a-lifetime (if not even rarer) opportu-nity for the US to restore its manufacturing

base after years of offshoring. The “ethane ad-vantage” afforded by plentiful shale gas – made more accessible by hydraulic fracturing and horizontal drilling – will put American chemical manufacturers in good stead against competitors in Asia and elsewhere.

Fitterling says Dow is moving at a rapid rate to capitalise on that advantage with a host of new investments. These include a planned 1.5m tonne/year ethylene cracker in Freeport, Texas, scheduled for start-up in 2017; the recent start-up of its formerly idled 380,000 tonne/year cracker in St Charles, Louisiana; a 750,000 tonne/year propane dehydrogenation (PDH) unit in Freeport set for completion in 2015; and an ethane conversion at its cracker in Plaquem-ine, Louisiana, also set for completion in 2015.

In the Middle East, Dow is in the midst of completing its planned gas-based feedstock chemical complex in Saudi Arabia, a joint venture with state oil firm Saudi Aramco called Sadara Chemical Company. “Sadara is well under construction,” Fitterling says. First production is set for the second half of 2015.

hard time planningFitterling says Dow leaders are most immedi-ately concerned with the economic uncertain-ties posed by continuing wrangling by US policymakers – President Barack Obama and Congressional Republicans – over fiscal is-sues. Those include the so-called “sequester”, an extension of the federal budget and the de-bate over raising the government’s debt ceil-ing. As long as those battles continue, Dow and other businesses will have a hard time planning for the future, Fitterling says.

For Dow (and some other US petrochemical companies), the shale gas phenomenon comes with a major caveat. While many natural gas producers are seeking federal permits for the ex-port of liquefied natural gas (LNG), Dow and many of its cohorts are arguing for more limited exports. Dow CEO Andrew Liveris, in both media outlets and in testimony before Congress, has argued that nearly unlimited exports of LNG will drive up prices, offsetting the feedstock cost advantage now enjoyed by manufacturers.

Fitterling says Dow is not opposed to all LNG exports, and in fact supports exports if they are part of a broader national policy that takes full advantage of the shale gas phenomenon.

“We need to be prudent [about exports],” Fitterling says. Keeping much of the newly discovered natural gas in the country, both for feedstocks energy uses, would help spur a renaissance in US manufacturing. “Five mil-lion jobs can be created,” he says. ■

the highest natural-gas prices in the world. “We had a reduction in investments, we had

a reduction in supply, we had a dampening in economic opportunity,” he says. “For the chemi-cal business, because we are so energy inten-sive, it was a dark period. It was a period of declining production, declining exports, declin-ing investments and, of course, declining em-ployment. We killed jobs.”

In addition, the argument behind supply con-trols is based on dubious logic, because it treats energy supply and demand as a zero-sum game, Pryor explains. Free markets do not work that way.

“If you allow demand for natural gas to rise because of LNG exports, that’s going to encour-age increased supply,” he says. “Conversely, if government tries to restrict demand and cap prices, that’s going to shrink supply.”

Such interference produces unintended conse-quences, Pryor says. “When you get involved in protectionism and price controls or market con-trols, you end up shrinking the economic pie. When you allow the free market to work and free trade to work, the economic pie expands because it attracts investments and it creates jobs.”

expansion plans ExxonMobil itself is developing a $10bn LNG export project in Texas under a joint venture, Pryor says. Construction alone should create 45,000 jobs. ExxonMobil estimates that the project will create 3,800 permanent jobs and $31 billion in economic activity during its life.

“It’s a tremendous, tremendous amount of economic activity, job creation, however you look at it,” Pryor says. “So you really have to say to yourself, ‘Why should the government discrimi-nate between an LNG investment to liquefy gas versus a chemical investment to solidify gas into plastic pellets? Why should the government discriminate between those two?’”

In fact, ExxonMobil is also expanding chemi-cal production at its complex in Baytown, Texas, the largest integrated refining and petrochemi-cal complex in the country. The rationale for the project, however, does not rest solely on low-cost feedstock, says Pryor. The petrochemical industry is global, competitive and cyclical, so any project would need more than just cheap feedstocks to succeed, he explains.

ExxonMobil’s Baytown complex achieves this, in part, by further expanding what is already the larg-est refining and petrochemical complex in the US, Pryor says. As such, the expansion will benefit from the integration and scale already present at Baytown. “What we are doing now is building on that model, making it even more robust by incorpo-rating additional integration, not just with refining but with our upstream business,” he says.

“Shale gas is a big opportunity, but you still have to have projects that are robust and will stand the test of time, both cost wise and in terms of the products it produces.” ■

James Fitterling, Dow Chemical

leaders are most immediately concerned with the economic uncertainties posed by wrangling by Us policymakers

ken FountAin hoUSToN

shale gas presents unique opportunity to restore Us manufacturing base

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AFPM interviews

Just like its peers in North America, Hunts-man has benefited from the advent of shale

gas, giving it access to some of the cheapest feedstock in the world. It was less than 10 years ago that Huntsman and other North American producers were shutting down plants – because the region had some of the most expensive natural gas in the world. “Nobody seems to be talking about that,” says the company’s CEO, Peter Huntsman.

But Huntsman warns that bad policy could cause North American producers to lose their advantage in low-cost energy and feedstock. Specifically, the US may approve more export terminals for liquefied natural gas (LNG).

For energy producers, the potential profits

Peter Cella, Chevron Phillips Chemical

Peter Huntsman, Huntsman Corporation

tracy dang houston

the US is “a competitive region” for olefins and derivatives

al greenwood houston

“do not surrender” price gains through gas exports are enormous. US natural gas prices are below $4/MM Btu. They are more than twice that amount in much of the world. However, open-ing the US gas market to exports could also open it to international energy prices, Hunts-man warns. “If you look at international energy prices, they are set by the price of oil. As you look at who controls the price of oil, it is OPEC,” says Huntsman. “Do we want that to be the marker for our natural gas?”

He adds: “Do we want to keep this advan-tage in North America or do we want to take market-based prices in North America today and surrender those to prices of energy that are set by a cartel?”

The North American market, meanwhile, is

Many petrocheMical companies are examin-ing investment opportunities in the us, since abundant shale resources provide access to low-cost natural-gas-based feedstock. peter cella, ceo of chevron phillips chemical (cp chem), says shale hydrocarbons also significantly reduce energy costs and transportation costs, giving the us several advantages over other countries that rely on more expensive conventional resources.

“it has certainly affected the investment op-portunities for companies like mine,” cella says. “it’s a significant incentive for petrochemical companies to take a hard look at taking their next unit and capacity to the us.”

cp chem is capitalising on shale-driven invest-ment opportunities. it is building a 1.5m tonne/year ethane cracker at its cedar Bayou plant in Baytown, texas, as well as two polyethylene (pe) units with a combined capacity of 1m tonnes/year near its sweeny plant in old ocean, texas.

the projects are currently in the front-end engi-neering and design (FeeD) stage for the next month or so, says cella. the company will spend most of the second quarter negotiating engineering, pro-

curement and construction (epc) contracts and other estimates before making a final investment decision. “i have no reason to believe they will be anything but approved,” he says. “once approved, we do see three to three and a half years for the construction phase, with completion in early 2017 and start-up in mid to late 2017.”

While the industry has been inundated with announcements of new plants and expansion plans, cella says he is not concerned about overinvestment. “i think what you will see is more exports,” he says.

“the us is becoming a competitive region to produce olefins and olefin derivatives globally.” Global demand is growing at 1.5 times gross domestic product (GDp), says cella, and the world needs to build four or five crackers a year to satisfy global demand growth.

cp chem is also expanding its natural gas liq-uids fractionator (nGl) complex at its sweeny plant in order to process more nGl from the eagle Ford and permian shale basins. cella says start-up should occur in a few months, increasing capacity by about 20% at the 116,000 bbl/day unit.

added 1-hexene and naoin addition, cp chem is building a 250,000 tonne/year on-purpose 1-hexene plant at its cedar Bayou complex to ensure it has sufficient supply to meet global demand. the project is expected to start up during the first half of 2014.

coinciding with that project cp chem is study-ing the possibility of expanding its normal alphaolefins (nao) capacity at the site. “We ex-pect the study to be completed at the end of the year,” cella says. “it’ll probably be a couple of years for any expansion and debottlenecking to be complete. We’re targeting at least a 20% in-

crease in a phased approach.” cella adds that while the company is excited

about what’s happening in the us, the shale re-source boom is not the full story for cp chem as it strives to be a world-class customer service or-ganisation with a number of global investments.

the biggest challenge the petrochemical indus-try is facing in the shale resource boom is ensuring it has adequate workers and resources to pursue these projects successfully. “We’re opportunity long and people-resource short,” cella says.

cp chem is re-examining its recruiting process-es, including expanding opportunities available to college graduates in its rotation and development programmes, as well as reaching out to those in community colleges and technical schools.

“We’re also looking for more diverse and expe-rienced hires,” cella says. “these are jobs that require some level of technical competency. Most are going to be experienced people already work-ing someplace else.” While ensuring that there is a steady supply of talented workers is an industry-wide challenge, cella says he does not see any “show stoppers” with the advent of shale.

“certainly, the catalyst for all this is the shale resource, and anything that would impair that would be detrimental to the entire value chain,” he says. “We are not aware of any big issues ex-pressed by any groups that can’t be overcome with technology that has already been proven.” ■

“It’s a significant incentive for companies to take a hard look at taking their next unit and capacity to the US”

❯❯

ECS_250313_008-016 11 14/3/13 11:40:06

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The so-called shale revolution has nurtured hopes that the Us petrochemical industry – and the wider manufacturing sector – can re-gain the lustre it once had before a wave of offshoring sent factories and jobs overseas. companies such as INeos olefins & Polymers North america, one of the newer players in the neighbourhood, are vying to take full advantage of what ceo dennis seith terms a “manufac-turing renaissance.”

“It’s been nothing short of phenomenal,” seith says of the new developments in shale oil and gas, brought on by improved technologies such as hydraulic fracturing and horizontal drilling. seith notes that the Us petrochemical sector is expanding its midstream capabilities through the expansion of pipeline capacity and other resourc-es designed to move vast new quantities of shale gas to manufacturing facilities.

The expansion of the refining and chemical production sector, with many millions of dollars worth of announced capital projects, will create a new wave of jobs, seith adds.

INeos is moving to take advantage of the new shale gas opportunity by expanding capacity at its chocolate Bayou facility in Texas with the con-struction of a new ethylene furnace that will add 211,000 tonnes/year of capacity. That comes on top of an already-planned 115,000 tonne/year debottlenecking project at the facility, which is slated for completion at the end of 2013.

economy still a worryMeanwhile, INeos Group is considering three sites on the Us Gulf coast as possible locations for a planned 500,000 tonne/year ethylene ox-ide (eo) and derivatives capacity investment. Those sites are the Battleground facility in la Porte, Texas; the chocolate Bayou faculty; and a third facility in Plaquemine, louisiana.

But in the near term, macroeconomic concerns are still a worry. “We had a great recession in the

economy, a major downturn,” says seith. such an event always has an effect on consumer demand for end-products. at the end of the day, he says, the Us petrochemical industry depends on both a strong Us economy and global economy.

With economic headwinds still blowing in the eurozone and slowing growth in china, and con-tinuing political wrangling over Us fiscal policy, seith believes there are still concerns for the next couple of years. But, he notes, in 2012 the global petrochemical industry ran assets at 86-88% of capacity, indicating that worldwide demand for products is getting healthier.

still, there are some major areas of concern, seith concedes, including a long-discussed tran-sition as many Us-based petrochemical compa-nies struggle to find younger skilled workers to replace those who are retiring.

“It’s been a long time since we were hiring people at levels of this significance,” seith ex-plains, alluding to the years when much of the petrochemical industry shifted overseas. In that period, much of the training in technical skills such as welding was not being done at the same pace as during the last boom period.

But with Us economy still showing only mod-est improvements in unemployment rates, seith says, one of the other bright spots of the shale gas phenomenon is that displaced workers may be drawn to new careers in a booming petro-chemical industry.

another, more controversial, aspect of the shale gas picture is how much of the new boun-ty should be kept within Us borders for energy and feedstock purposes, and how much should be allowed to be exported.

While gas producers say that there should be few if any limits on the amount that can be ex-ported in the form of liquefied natural gas (lNG), some companies that use gas for energy and feedstock purposes, wary of possible increased prices, have argued for more limited exports.

seith says his company supports a policy based on free trade. “It’s hard to set limits on exporting one product when you’re arguing for open exports of others [such as crude oil],” he says. Moreover, he adds, building the infrastruc-ture necessary to support lNG will pay other dividends in the near term and in the future. ■

adjusting to low gas prices without energy producers going under. Huntsman says the re-gion’s natural-gas demand should rise as power plants switch from coal to natural gas. And the nation’s petrochemical industry is undergoing a renaissance, with companies announcing ethylene, isobutylene and propylene projects

“I don’t think there has ever been a time when the US has had such an advantage over so much of the rest of the world when it comes to petrochemical production,” says Hunts-man. “This certainly is as large a game chang-er as I’ve seen in the last 30 years.”

switch to investment In fact, what is happening in North America is comparable with the build-up in capacity in the Middle East and China during the last dec-ade, Huntsman believes, especially when you consider the dismal health of the region’s petrochemical industry five years ago.

“This industry was shutting down billions of dollars worth of investment in North America, and here we are five years later investing bil-lions of dollars,” he says. “The Middle East and China have always been gradually growing and then growing at a faster rate. In neither of those cases have you seen such massive cyclicality, where literally billions of pounds of product have been shut down and then subsequently reversed within a matter of two to three years.”

Looking ahead, where North America’s in-dustry goes will depend, to a large part on how smartly the region plays its energy op-tions, Huntsman says. “If we look at our raw material sources as an opportunity, there is no doubt that the US would be a preferred loca-tion for not just petrochemical but for energy-intensive manufacturing for the next decade.

“As you look at aluminium, steel, chemicals and automotive components and aerospace – all of these areas really have a unique opportu-nity to expand in the world’s largest economic market and to do so in a very competitive man-ner because of this abundance of raw material.”

Huntsman has experienced both extremes of his industry. “Four years ago, out of our growth capital as a company, virtually none of that was in North America. We were spend-ing more money shutting down assets in North America than we were in building or expanding assets in North America,” he says.

“Think about that. That was just five years ago. And today, well over half of our expan-sion capital globally is in North America.” ■

Dennis Seith, INEOS Olefins & Polymers

“it’s hard to set limits on exporting one product when you’re arguing for open exports of others”

KEN FOUNTAIN hoUsToN

ineos expects demand growth in spite of lingering macroeconomic concerns

“i don’t think there has ever been a time when the Us has had such an advantage over so much of the rest of the world”

❯❯

ECS_250313_008-016 12 14/3/13 11:41:01

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Beate ehle remembers a quieter North american petrochemical scene, a time when there were no thoughts of building new crackers and companies looked at just about anywhere but the US when it came to planning future produc-tion. that was just 10 years ago, the BaSF presi-dent for market and business development for North america notes.

times – more specifically, feedstock costs – certainly have changed. Cheaper raw materials and energy thanks to the shale gas boom have transformed North america into a petrochemical hotbed of activity, and German chemical maker BaSF is knee-deep in that transformation.

“It’s real,” ehle says of the shale boom. “Shale gas is very real in the US, and its benefits are also real in the US… With that, investments that might not have been feasible for the US five to 10 years ago are now quite attractive.”

“I would say the cheap raw material and energy costs have been the missing link for the US to be a very attractive investment market for the petro-chemical industry,” ehle explains. “What the US

also offered in the past and still offers and will offer in the future is political stability. It’s the sec-ond biggest chemical market. You have the infra-structure to deal with petrochemicals, to deal with chemicals. You have the customer structure. So adding now cheap raw material and energy costs, I would say it is the perfect storm.”

ehle’s optimistic viewpoint is one shared by many in the petrochemical industry, although she does see a few clouds in an otherwise sun-ny sky. While shale gas has changed the supply picture, the demand side of the equation for pet-rochemicals has not changed, she says. “and with that, the dynamics are changing in the US petrochemical industry, but it will not eliminate the cyclicality [of the marketplace].”

“Right now, the US has 26m-27m tonnes/year of ethylene capacity, and another roughly 11m tonnes/year have been announced. I would say that’s more than the US can digest in the whole market. that might somehow impact at least for a certain period of time the supply-de-mand balance,” ehle says.

labour supply an issueWith all the plans announced to build more ethyl-ene crackers and on-purpose propylene plants, there is a need for qualified labour to build and operate the facilities. But the supply of that labour could be an issue. “especially in the Gulf coast area, we have to make sure that we have enough installation services available for who-ever wants to build there,” ehle says.

the move away in the US from naphtha to cheap ethane cracking has created a supply-demand is-sue with olefins. ethylene now is in great supply

because of the change, while propylene and butadi-ene production have fallen in response. Various companies have announced plans to build pro-pane dehydrogenation plants to make on-purpose propylene, thus possibly filling that gap down the road. But butadiene production looks to stay low as more ethane crackers come on line.

“the change to lighter feedstocks in crackers has changed the ratio between C2 ethylene, C3 propylene and C4 butadiene. C2 is long, C3 is short and expensive, and the same is true for C4,” ehle notes. “Now moving forward, there are a lot of announcements for C3 on-purpose. I think overall seven PDh plants have been announced for US. If all of that comes true, I think it would balance more or less what we have lost in North america in C3 capacity due to changes in the refinery activity and due to primarily changes to lighter feedstock, so this would definitely have an impact on C3 avail-ability and C3 pricing in North america.

“For C4, the story’s a little bit different, be-cause so far for C4, at least I’m not aware of any good on-purpose technology for C4, so the other picture is a little bit unclear as to what will change the current situation where C4 is short and quite expensive,” she adds.

“In a nutshell, will more investment come to the US? I would say yes,” ehle concludes. ■

March 2013 | AFPM Supplement | 15

AFPM interviews

While the shale gas development has pro-vided the US petrochemical industry

with an abundance of natural gas liquids (NGL) as an alternative to more expensive naphtha, the cracking of lighter feedstock is resulting in constrained supplies of co-prod-ucts such as butadiene (BD).

BD is typically extracted from a four-carbon (C4) mixture that is produced along with eth-ylene and other olefins in the steam cracking process. A naphtha cracker produces about 18lb (8kg) of BD per 100 lb of ethylene, where-as an ethane cracker produces only about 2.5lb of BD as a co-product, says Mike McDonnell, CEO of US butadiene producer TPC Group.

Over time, the US has shifted from cracking naphtha to lighter feedstock, he adds, and the current feed slate in the US is roughly 60% Mike McDonnell, TPC Group

jeremy pafford hoUStoN

shale gas the “missing link” for us to attract investment

“investments that might not have been feasible for the us five to 10 years ago are now quite attractive”

tracy dang hoUStoN

tpc focuses on securing c4 supply for volatile butadieneethane. “Since 2007 to about 2012, generation from ethylene production in the US has dropped by about 20-25%,” McDonnell ex-plains. “So it’s been a dramatic drop.”

He adds that most of the change occurred in 2007-2009. But now, “we believe that most of the lightening has occurred. C4 supply is now relatively stable and any further lighten-ing will be offset by ethylene debottlenecking and new ethylene crackers in the future.”

price volatilityDespite the constrained but stable supply, de-mand remains strong as BD is a “mission-critical” product for a variety of end-markets such as tyres, nylons and plastics, McDonnell says. “While BD supply is governed by crack-er feed slate and operating rate, demand is ❯❯

Beate Ehle, BASF

ECS_250313_008-016 15 14/3/13 11:43:16

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AFPM interviews


driven by end-markets. Supply and de-mand tend to be balanced through price mechanism since there is no way to store the BD in pure form for very long.”

As a result, BD market conditions can be af-fected by price volatility and period shortages of the product. “North American demand is met by increasing levels of imports to help bal-ance demand with supply,” McDonnell says.

That growing supply crunch could be met by on-purpose BD production, using the NGL feed-stock found in shale – particularly ethane and butane. Using its proprietary Oxo-D technology, TPC would convert butylenes from a variety of sources into BD. TPC used the process between the 1960s and 1980s and is planning on bringing back on-purpose BD production, using a combi-nation of existing and new assets, to make up to 600m lb/year (270,000 tonnes/year).

The preliminary engineering study has been conducted, and TPC hopes to have the engineering design optimisation completed by the end of the third quarter of 2013. Start-up is targeted for 2016.

“We’re going to bring this project on,” McDonnell says. “So what do we do in the meantime? The challenge is ensuring there are adequate C4s for the North American market over the next few years, and managing the volatility of BD.” TPC says it will contin-ue to drive the efficiency of aggregation, processing, storage and distribution capabili-ties, while it accesses additional C4 sources globally to import into the US.

While TPC has growth strategies that target markets with favourable, long-term fundamen-tals, it will continue to capitalise on the supply of products that are critically short but mission-critical, including utilising idled dehydrogena-tion units and excess capacity in C4 extraction, McDonnell says. “C4 is core to TPC,” McDon-nell adds. “We will continue to strengthen our C4 processing foundation to better serve our suppliers, business partners and customers.”

TPC’s recent acquisition by private equity firms SK Capital and First Reserve will help it achieve those goals by providing access to cap-ital to grow, as well as the networks of skills and experience to support growth initiatives.

McDonnell adds that other challenges fac-ing the industry include managing a growth phase of large capital investments amid a tight market for skilled workers and other project resources, as well as ensuring there is ade-quate investment in infrastructure to process, store and transport NGLs. ■

leela landress Medellin, ColoMbia

abundant ethane set to fulfil feedstock needs for nOVa Chemicals in Canada

With US natural gas values low and tumbling ethane prices in the US, Canada’s noVa Chemicals is poised to capitalise on the ethane price advantage. “Companies that succeed in this business are the ones that react to what is happening out there,” says Grant thomson, president of olefins and feedstock at noVa Chemicals in Calgary.

Chemical manufacturers in north america are enjoying a major cost advantage over producers in other regions that has not been seen for more than a decade. in europe and asia, where ethyl-ene production is based mainly on naphtha, pro-ducers have been hit by rising naphtha costs.

ethane bOrder flOwsthe Canadian petrochemicals industry is short on ethane – a key natural gas component and vital ingredient for chemicals producers. “We have seen declining border flows, especially on those flows going east in the last 5 to 10 years,” thomson says. “and that has led to ethane shortages here in alberta.”

after decades of volatile natural gas prices that limited industrial demand, shale gas offers north american competitiveness, prompting new investment. Companies are getting innova-tive and importing ethane from north dakota and Marcellus shale, and recovering off-gases from bitumen upgraders, according to thomson.

“We are going to be bringing ethane in from the bakken area,” explains thomson who adds that the Vantage pipeline, which will be operated by noVa, is in the process of being built. the Vantage pipeline is a high vapour pressure pipe-line that will carry ethane from a source near tioga, north dakota in the US, northwest to a site near empress, alberta, in Canada, accord-ing to the US department of State.

the conduit is expected to have the capacity of

40,000 bbl/day, expandable to 60,000 bbl/day of liquid ethane from existing natural gas facili-ties in north dakota to the alberta ethane Gathering System in alberta, according to the federal agency. the pipeline is expected to be up and running by the end of 2013, says thomson.

noVa also plans to diversify its feedstock portfolio with plans to get feedstock from off-gas flows from the oil sands. “We are putting facili-ties in place to be able to extract the ethane out of that liquids-rich stream and use that as an-other major source of feedstock and with that we are going to be maximising our ethylene pro-duction and building a derivative plant here in alberta,” he says. thomson adds that the com-pany is planning to spend about $2bn of capital in projects over the next few years.

these include a 1bn lb/year (454,000 tonnes/year) polyethylene (Pe) project in alberta, which is expected to be finished by the end of 2015, and a $250m conversion of its Corunna cracker facility in ontario to a 100% light feed plant to take advantage of the low-cost gas environment. the plant will only use natural gas liquids (nGls) and is expected to be finished at the end of this year.

noVa is also in the early engineering phase for some of the eastern assets looking at the expan-sion of the ethylene facility, thomson says.

in the US, six new 100% gas-fed crackers are scheduled to come on stream over the next five years, in 2016-2017, with another due around 2019-2020. the new crackers, expansions of existing facilities and restarts of previously shut-down facilities could add 10.2m tonnes/year to US ethylene capacity – a 38% increase.

US ethane prices have tumbled in the last year, enabling sharp increases in margins for ethylene and its derivatives. average US ethane prices declined by nearly 50% in 2012 com-pared with 2011 and nova has positioned itself to take advantage of privileged feedstocks.

“noVa is going to continue to do what we do well,” says thomson. “We make ethylene and we make Pe and we want to continue to take advan-tage of competitively priced feedstock.” ■

Grant Thomson, NOVA Chemicals

“we have seen declining border flows, especially on those flows going east in the last 5 to 10 years. and that has led to ethane shortages here in alberta”

“the challenge is ensuring there are adequate C4s for the north american market over the next few years”

❯❯

ECS_250313_008-016 16 14/3/13 11:44:00

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www.icis.com18 | AFPM Supplement | March 2013

AFPM shAle gAs

joseph chang new york

Us shale gas boom drives cracker wave

Plans to build seven new crackers and expand existing plants could add almost 10m tonnes/year of ethylene capacity, or 37% of the total today

Get ready for an unprecedented wave of new cracker construction in the US. The nation has moved further down the global cost curve in petro-

chemical production on the back of the shale gas boom, leading to the launch of seven new worldscale cracker projects and more expan-sions. This could ultimately add as much as 37% to existing US ethylene capacity by the end of the decade and significantly boost the US footprint in the global petrochemical arena.

Meanwhile, US producers are enjoying record profit margins as feedstock natural gas liquids (NGL) ethane and propane have fallen, conditions that Wall Street analysts expect to extend into a peak in 2014-2016. The outlook is no doubt very positive for the coming years. Yet the massive projects set to come on stream in 2016-2017 are likely to lead eventually to overcapacity and a downturn in the cycle.

“Looking at the revised cost curves and what we expect to be a capacity addition vac-uum in the 2012-2017 time period, we expect to see a long duration and high amplitude peak in the commodity chemical cycle as early as 2015-2016,” says Hassan Ahmed, an-

by a dip and then another peak, but rather a “doubly good” peak in the form of higher mar-gins from low NGL feedstock costs, coupled with higher operating rates.

“Wet shale gas dynamics are fundamentally changing the game for integrated North Amer-ican-based producers like Dow,” said Liveris on the company’s fourth-quarter conference call in February. “This is clearly evidenced by operating rates in the US and Canada being in the 90s [%] while Asia and Europe have been in the 70%s.

“Further, as global demand outstrips sup-ply in the next few years and world GDP gains further traction, we anticipate operating rates higher than 90%, leading to substantial mar-gin expansion – a double peak, so to speak,” Liveris said.

oIL anD gas coRReLaTIonsIn 2012, US petrochemical producers benefit-ed mightily from falling ethane feedstock costs. They also benefited on the price side as chemical prices remained high along with oil prices. Even though around 85% of US chem-ical production is based on natural gas, US

rex

Feat

ures

alyst at Alembic Global Advisors. “This sug-gests that there may still be substantial room for positive earnings revisions and in turn, a further share price rally for US ethylene ex-posed names.”

Vincent Andrews, analyst at US-based in-vestment bank Morgan Stanley, also sees the “potential for an ethylene super-cycle in the 2014-2016 timeframe”.

US-based Dow Chemical CEO Andrew Liv-eris expects the US ethylene cycle to hit a “double peak” in the coming years – not in the traditional sense where a peak is followed

ECS_250313_018-022 18 14/3/13 12:24:51


❯❯

petrochemical prices as measured by the US ICIS Petrochemical Index (IPEX) follow crude oil prices rather than those of natural gas.

The r-squared (R2) or significance of correla-tion between the US IPEX and West Texas In-termediate (WTI) crude oil prices going back to 2000 is 84.4%, according to an ICIS analy-sis, indicating a high degree of correlation. The R2 between the US IPEX and Henry Hub natu-ral gas prices was an insignificant 5.8%.

This gives US producers a double edge – lower natural gas-based feedstock costs and higher chemical prices based on high crude oil prices.

Companies most leveraged to US ethylene production were among the top performing stocks in 2012. Shares of LyondellBasell surged by 76% to $57.09 by the end of 2012, while Westlake Chemical jumped by 97% to $79.30, even after paying a special dividend of $3.94 in November. More diversified play-ers such as Dow Chemical fared less well. Its stock price rose 12% to $32.33.

WORLDSCALE CRACKERSCompanies flush with cash and encouraged by low US ethane prices are rushing to bring on new ethylene capacity.

Right now, there are seven worldscale crackers planned in the US, along with seven planned expansions of existing facilities that together amount to the capacity of almost one more worldscale cracker. We define a worldscale cracker at between 1m-1.5m tonnes/year of capacity.

The companies proceeding with plans to build new crackers include Dow Chemical, ExxonMobil Chemical, Chevron Phillips Chemical, Formosa Plastics, Sasol, Shell Chemicals and Occidental Chemical/Mex-ichem. All but one of the planned seven new crackers are based in the US Gulf Coast – the exception is Shell’s in Monaco, Pennsylva-nia, in the heart of the Marcellus shale region in the northeast US. That cracker will likely come on line in 2019-2020 if it proceeds, while all the rest are scheduled to come on line between 2016-2017.

The total planned ethylene capacity addi-tions amount to 9.78m tonnes/year, or a stun-ning 37% of existing US capacity. This ex-cludes Dow’s restart of its 380,000 tonne/year St Charles, Louisiana cracker in December 2012.

And there are more companies that have said they are exploring the potential of build-ing a new cracker in the US. These include Thailand-based Indorama Ventures, Thai-land’s PTT Global Chemical, Brazil’s Braskem, Saudi Arabia’s SABIC and US-based Axiall (former Georgia Gulf).

US start-up Aither Chemicals has also an-nounced a small 272,000 tonne/year cracker in the northeast US. An official at South Korea-based Hanwha Chemical was also quoted in a local media report in February that it is in-volved in talks concerning the building of a cracker in the US.

US EXPORTS RAMP UPThe low-cost position of US petrochemical producers relative to their counterparts in Eu-rope and Asia, which primarily use oil-based naphtha feedstock, has led to an increasing volume of US chemical exports.

US chemical exports totalled $190.7bn in 2012, up by 1.8% from 2011, and are projected to rise by 4.7% to $199.7bn in 2013, and an-other 6.2% to 209.6bn in 2014, according to the American Chemistry Council (ACC). The US chemical industry swung back to a net ex-port position in 2012, and is expected to main-tain a trade surplus for the foreseeable future.

“Renewed competitiveness from shale gas – and the resulting disconnect between US natural gas prices and global oil prices – will boost US exports in the years ahead,” says ACC chief economist Kevin Swift. “New in-vestments to take advantage of this competi-tive position will begin to supply export mar-kets in the coming years.”

US chemical production volumes are poised to surge between 5-6%/year from 2014-2017, driven by the shale gas boom.

“Most forecast models are demand-driven, but the US shale gas phenomenon is a supply-side shock – a positive shock that will have a

knock-on effect on chemical production and GDP for the next 10 years,” says Swift.

“Models don’t capture the supply side. While the consensus outlook calls for produc-tion growth in the 2-5%/year range, we think the growth profile will be much higher,” he adds For the coming years, he sees US chemi-cal production volumes, excluding pharma-ceuticals, rising by 2.9% in 2013, followed by a 5.4% surge in 2014 and another 6.0% jump in 2015.

Already there have been over 50 chemical projects requiring capital investment of more than $40bn announced in the US to capitalise on the shale gas advantage, says ACC economist Martha Moore.

“We see shale gas fuelling the US manufac-turing sector, which will also pull on chemical demand. But also some of the surplus will be going to exports because of renewed US com-petitiveness,” Moore says.

“US chemical exports have continued to find a home, in part displacing local produc-tion primarily in Asia and to some extent Latin America. This has helped support pric-ing and margins by maintaining high operat-ing rates,” says Charles Nievert, analyst at US-based investment bank Dahlman Rose.

“Clearly, low-cost nat gas is directly trans-lating to a low-cost position for US plastics producers. This competitive advantage has created a global market opportunity, which is a nice offset during times of lacklustre domes-tic demand,” notes Frank Mitsch, analyst with US-based investment bank Wells Fargo.

“In 2011 and 2012, we estimate that polyvi-nyl chloride [PVC] exports accounted for 39% and 37% of North America production, re-spectively. Polyethylene [PE] exports have not risen as dramatically, but have stepped into the 20%+ range after averaging in the mid-teens from 2000-2006,” he adds.

ETHANE OUTLOOKMany believe US ethane and propane prices will remain low for years to come, allowing US petrochemical producers to sustain their cost advantage. Ethane prices have fallen from al-Notes: R2 US IPEX, natgas = 0.058, R2 US IPEX, crude oil = 0.844

$/bbl

Henry Hub Natural gas priceWTI Crude Oil US IPEX

US CHEMICAL PRICES TRACK CRUDE OIL – NOT NATURAL GAS

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“Clearly, low-cost nat gas is directly translating to a low-cost position for US plastics producers. This competitive advantage has created a global market opportunity”fRANK MiTSCH Analyst, Wells Fargo

ECS_250313_018-022 19 14/3/13 12:25:07

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MARKET UPDATE:

Global polymers to face

heightened competition

The global commodity polymers market

continues to be under severe pressure

from challenges such as the European

debt crisis, slowing emerging market

growth and increased competition.

Despite these challenges, overall polymers

consumption is poised to grow at a

compounded annual growth rate (CAGR)

of 4.7%/year through 2015.

China Impact

In the first quarter of 2012, the CFR (cost &

freight) Japan naphtha price has risen to its

highest level since May 2011 supported by

strong demand, tight supplies and strong

crude values.

Energy and feedstocks:

Asia crackers ramp

up production,

boosting naphtha

Natural gas prices, front month

Global Naphtha prices

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2013

Untitled-1 1 6/2/13 16:00:44

ECS_250313_020 20 15/3/13 12:10:28


AFPM shAle gAs

most 80 cents/gal in January 2012, to the mid-20 cents/gal range as of late February.

Dow CEO Liveris expects the US ethane market will remain long for the next four-to-five years. “One would expect … we’re going to benefit from this 20-something number for a few years to come. If it goes into the 30s, it will be due to aberrations,” said Liveris on the company’s fourth quarter conference call on 31 January.

Dow has a $25bn asset base in the US that

will benefit from low ethane prices, Liveris said. Dow also expects to take advantage of low propane prices, as it uses both ethane and propane feedstock at its crackers.

“We are especially bullish on propane. In fact, going forward, we see structurally long propane creating a ceiling on ethane pricing,” Liveris said. “And you can be sure Dow’s feedstock flexibility will allow us to continue to pivot, so we continue to take advantage of our uniquely advantaged feedstock slate.” ❯❯

❯❯

The debaTe on US liquefied natu-ral gas (LNG) exports is heating up, with oil and gas companies lined up on one side and the chemical sec-tor on the other.

More than 20 companies have applied for approvals with the US department of energy (dOe) to ex-port LNG. The combined planned LNG export capacity amounts to around 200m tonnes/year – or about 40% of US natural gas consumption, according to an ICIS analysis.

For those US LNG export projects with disclosed completion dates – all between 2015 and 2018 – the capacity amounts to 129m tonnes, which is still a sub-stantial amount.

This has caused concern among a number of US chemical company CeOs, who fear that un-limited LNG exports could take away the US competitive advan-tage – both in cheap natural gas liquids (NGL) feedstock for chemi-cal production, as well as cheap energy for overall manufacturing.

If you look over the impressive list of planned projects for US LNG exports, it’s hard not to see a paral-lel in the heavy project slate for planned new world scale crackers in the US. both are being driven by the US shale gas boom.

Unlimited US LNG exports could create volatility in natural gas and NGL prices, contends US-based dow Chemical.

While LNG exports for fuel would consist primarily of dry gas, with NGL stripped out in the process, LNG containing ethane and pro-pane could be shipped out as well, according to the company.

“It is not a given that NGL will always be stripped out prior to

shipping,” says Kevin Kolevar, vice president of government affairs and public policy at dow. “For ex-ample, Japan has specs for wet gas concentrate in LNG. and to what extent would other countries look to use wet gas? We have not heard assurances from the oil and gas community that they would strip out the NGL.”

This is an important aspect for the chemical sector. There’s another argument that LNG exports could actually increase NGL supplies, pre-cisely because it is stripped out.

dow estimates that over a 10-year timeframe, the US could ex-port up to between 5 billion cubic feet (bcf)/day – or 141.5 million cubic metres (mcm)/day - and 6bcf/day (169.8mcm/day) of natu-ral gas through LNG without disrupt-ing the market, if that capacity

comes on in a linear fashion.That would amount to 38m-46m

tonnes/year of LNG. Yet, there is a total of 200m tonnes/year of LNG export capacity being planned in the US. While not all that capac-ity would be built, if the LNG projects get full approvals to pro-ceed, there is virtually no chance they would come on in a disci-plined, linear fashion – neither will the wave of new worldscale ethane crackers.

The battleground is now set over dOe approvals of US LNG exports to countries that do not have free trade agreements (FTas) with the US. as of the end of January, the dOe has granted 20 approvals for LNG ex-ports to FTa countries, but only one to non-FTa countries – that of Cheniere energy’s Sabine Pass project.

exports to non-FTa countries is

the big game, as these nations in-clude Japan, China and all of europe – major target markets. Japan is a huge importer of LNG for its fuel needs. In 2012, Japan’s LNG imports jumped by 11.2% to a record 87.3m tonnes.

The dOe notes on its website that for non-FTa countries, it “is required to grant applications for export authorisations unless the department finds that the pro-posed exports ‘will not be consist-ent with the public interest’. Factors for consideration include economic, energy, security and en-vironmental impacts.”

That’s where chemical compa-nies are bringing the fight – citing the “public interest” provision in the dOe’s remit, and claiming un-checked LNG exports will erode US manufacturing competitiveness. ■

energy joSePh chAng NeW YOrK

the great Lng export debate

cheniere energy has Lng export facilities under construction at its Sabine Pass terminal

“We expect to see a long duration and high amplitude peak in the commodity chemical cycle as early as 2015-2016”hassan ahmed Analyst, Alembic Global Advisors

Chen

iere

ene

rgy

ECS_250313_018-022 21 14/3/13 12:44:53


AFPM shAle gAs

Gregg Goodnight, analyst at global invest-ment bank UBS, also sees low ethane prices for the next four years.

“We believe that ethane will be oversup-plied until the first grassroots cracker expan-sions are seen in 2016-2017,” says Goodnight. “Low ethane prices should assure that Lyon-dellBasell’s light feed crackers will achieve outstanding EBITDA [earnings before interest, tax, depreciation and amortisation] margins near $0.30/gal.”

Before 2008, US ethane supply and de-mand had been in relative balance at around 900,000-1m bbl/day. But after the rapid accel-eration of shale gas production, which tends to be rich in NGL, today’s ethane supply of around 1.1m bbl/day has outpaced US crack-ers’ ability to consume ethane of about 1m bbl/day, notes Goodnight. This has led to ethane “rejection” of between 100,000-200,000 bbl/day, where this excess ethane is added back to gas streams to be sold as fuel.

MIDDLE EAST MovES UP THE CURvEWhile the US moves down the global ethylene cost curve on the back of cheap ethane costs, the Middle East is moving up, according to Alembic Global Advisors’ Ahmed.

Middle East ethane crackers still enjoy the lowest costs in the world, with a 46% cost ad-vantage relative to US ethane crackers, but Middle East mixed feed crackers have a 24% cost disadvantage to US ethane crackers, says the analyst.

“NGL production in Saudi Arabia has re-mained relatively flat over the last few years while ethylene capacity has increased consid-erably,” says Ahmed. “Saudi Arabia has been running short of NGL since 2009 and, not sur-prisingly, is considering heavier feeds like naphtha for further chemical expansions.”

The analyst adds that state oil and gas com-pany Saudi Aramco has not made any new ethane allocations to the chemical sector in Saudi Arabia since 2006, because it is likely that it foresaw ethane shortages.

New projects, such as Saudi Aramco’s Sa-dara joint venture with Dow Chemical and its Petro Rabigh venture with Japan’s Sumitomo Chemical, involve mixed feed crackers.

In Qatar, a moratorium on ad-ditional gas development projects in its massive offshore North Field through 2014 will limit new supplies. “This has clear ramifications on petro-chemical supply in Qatar.

Even if the very day the moratorium were lifted, the decision to add a new cracker was announced, it would still take four years to bring it on stream,” says Ahmed.

In Iran, aside from the global trade sanc-tions led by the US, which is severely limiting its petrochemical and derivative exports, the government plans to eventually set natural

gas prices to market prices, noted the analyst.“Industrial projects, including the petro-

chemical projects, now have to pay around $2/MMBtu for natural gas for the first year of the reform plan, which is considerably higher than the past price of $0.53/MMbtu in early 2010,” says Ahmed.

Looking ahead, Iran plans to increase gas prices to 65% of the average export gas price within 10 years, suggesting gas prices of $5.20-6.50/MMBtu, the analyst adds.

Ultimately, all these changing cost factors are worth another look when considering the Middle East’s position on the global ethylene cost curve.

“Our view of an imminent peak in the com-modity chemical cycle is primarily predicated on what we consider to be a capacity vacuum arising between 2012 and 2017 as Middle Eastern producers exit the capacity game and US capacity additions are still years out,” Ahmed says.

CoNSIDERATIoNSYet taking the longer view, many things have to go right for the US market to absorb a 37% increase in ethylene capacity over a relatively short period of time. Methanol capacity is also set to rise dramatically, as is propylene, with seven propane dehydrogenation plants being planned in North America.

Meanwhile, it is important to realise that the US chemical sector is not the only group seek-ing to take advantage of low natural gas prices.

In the coming years, there will be increas-ing demand draws on natural gas, including new electric power plants, fertilizer plants, and liquefied natural gas (LNG) exports. The debate on the latter issue is heating up with a number of US chemical CEOs lining up against unrestricted LNG exports, fearing that this would diminish the industry’s competi-tive edge, along with lower energy prices en-joyed by the wider manufacturing sector.

Already Switzerland-headquarted INEOS plans to ship ethane from Pennsylvania to its cracker in Norway by 2015. What could be next? ■

SOURCE: ICIS Consulting

Ethane price, cents/gal Ethylene margin, cents/lb

Ethane priceEthylene margin

US ETHYLENE MARGINS INCREASED DRAMATICALLY IN 2012 AS ETHANE PRICES FELL

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“Wet shale gas dynamics are fundamentally changing the game for integrated North American-based producers like Dow”ANDREW LIvERIS CEO, Dow Chemical

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ECS_250313_023 23 15/3/13 12:38:50


AFPM SHALE INFRASTRUCTURE

The booming production of shale gas and oil is raising serious questions over how to get it directly into the hands of customers and how much can be exported without affecting the low-cost advantage that is revitalising manufacturing in the US

Delivering on the shale gas promise

SEVERAL REFINERIES have al-ready begun or have announced projects to increase light domestic crude refining capacity, which has the potential to cause a drop in foreign crude imports.

Before the peak of demand in 2007 and the recession in 2008-2009, seven new refinery projects were planned to be completed be-tween 2011 and 2015, which would add about 1.1m bbl/day of medium and heavy crude capacity while reducing light capacity by 630,000 bbl/day, according to en-gineering consulting firm Turner, Mason & Company (TM&C).

However, since the shale oil pro-duction boom, refiners have reset course for projects that will in-crease light crude capacity while maintaining medium and heavy processing capacity.

This will lead to an increase in overall refining capacity.

In addition to several refineries

that are maintaining current capac-ity by processing more light domes-tic grades and reducing foreign crudes, six new projects have been initiated or planned which will add 108,000 bbl/day of new light crude capacity alone, TM&C said.

Both Valero and Flint Hills have recently announced plans to in-crease the processing capabilities of Eagle Ford crude at their Houston and Corpus Christi refiner-ies in Texas, respectively, while not changing total crude rates.

Despite growth from heavy Canadian crude growth – and projects at BP’s Whiting refinery in Indiana and Marathon’s Detroit re-finery in Michigan in order to meet increasing mid-continent demand – Canadian crude will not be a ma-jor competitor to Latin American heavy crudes on the US Gulf Coast until the Keystone XL pipeline is completed, according to TM&C.

The domestic crudes are dis-

placing light sweet crudes that are available for imports because the import of light sweet is pegged to the Brent price, explains Jeff Hazle, AFPM’s senior director of refining technology.

“The effect on prices is depend-ent on last marginal barrel wher-ever it’s from. This means that there is not going to be a lot of change. Refiners will continue the relationships with foreign import-ers,” Hazle says.

“The real question is, can light sweet domestic production grow to a point where it can completely dis-

place other imports and sustain that level?”

One problem that arises is within the product itself. According to Hazle, there are issues posed by domestic light sweet crudes be-cause they are so paraffinic in chemical composition that they do not mix well with other crudes. This can cause refiners to run into op-erational problems.

“Refiners will take in as much as they can, but there are potential pit-falls,” says Hazle. “It will be an inter-esting story down the road. Have they gotten everything out of them?” ■

refineries AnnA MAtherne & bobbie clArk HOUSTON

refinery feeDstocks shift to lighter cruDes

the shale boom has caused refiners to rethink capacity projectsRo

y Lu

ck

the resurgence of oil and gas production in the US because of the vast shale gas plays has brought about fresh issues and opportunities for the industry. One

of the biggest challenges is finding the means to transport the shale products to where they can be utilised effectively as feedstocks. This is crit-ical to the petrochemical sector that is looking to boost its ethylene production, which will feed into new downstream investment.

“As you know, our member companies have shifted the feedstocks they use over time,” says Jim Cooper, vice president of petro chemicals at

“We can use the ethane that comes from shale productionand we’re very competitive worldwide regarding ethylene”jim cooper Vice president for petrochemicals, AFPM

anna matherne & bobbie clark HOUSTON

ECS_250313_024-027 24 14/3/13 12:52:26


❯❯

which serves refineries locally and in the Hou-ston area, and it includes dock facilities at Free-port and Texas City.

However, since its started, the Seaway pipe-line has not been running at full capacity, which is raising an even bigger issue for some.

Enterprise spokesman Rick Rainey clarifies that the reduction is not because of technical problems with Seaway, or with the terminal, but because customers are not taking enough oil out of the terminal. “This may signal larger con-cerns, that instead of alleviating the glut at Cushing, we may just be exchanging one glut for another,” says Phil Flynn, senior market an-alyst at Price Futures Group. “Are we are pro-ducing oil faster than the demand or the logis-tics and storage will allow? There are fears of a never-ending glut that may mean that we might not be able to take full advantage of our growing production prowess.”

According to Flynn, the answer may be to allow widespread export of US oil and gas. But, as Flynn explains, under present legislation, that may pose an even larger problem. “Back during the Arab oil embargo, the US passed a law that banned all oil exports except for a few specific instances and President Reagan did allow exports to Canada. This president does have the authority to allow exports to other counties, yet that may be tough seeing that he is anti-oil,” Flynn explains.

Natural gas exportsThe abundant shale resources in the US has also sparked a debate over whether to export natural gas as liquefied natural gas (LNG), creat-ing rifts between industrial users and mid-stream project developers that want to ship LNG to overseas markets. In recent weeks, the various stakeholders have firmly entrenched

AFPM. “In the US, we have a lot of flexibility in our manufacturing that other regions don’t have. We can use the ethane that comes from shale production and we’re very competitive worldwide regarding ethylene.”

As each test-well from shale reserves pro-duces more positive numbers, the problem of bringing the oil and gas down to the US Gulf region has increased. According to Cooper, there have been significant advances when it comes to drilling in the shale plays. “The im-aging used when drilling has improved dra-matically. We now have a much better under-standing of what the shale play looks like,” Cooper explains. “The advancement and ex-perimentation of fracturing fluids has im-proved and is ongoing, including those that don’t use water at all.”

But once the oil is drilled, transporting it be-comes the next struggle. Enter the Keystone XL and Seaway pipelines.

The Keystone XL pipeline would provide US refineries with upwards of 700,000 bbl/day of crude including conventional oil, shale oil, partially upgraded synthetic oil and oil sands–derived bitumen blends. The 875 mile (1,408 km) pipeline, a project of TransCanada, would cross the border between the US and Canada. It would transport oil from Hardisty in Alberta, and the Bakken shale formation in the US, to Nebraska and eventually to refiner-ies along the US Gulf Coast.

However, the approval process on the pipe-line has been a big struggle. On 1 March, the US Department of State issued an expected Environ mental Impact Statement (EIS) as part of the process in the development of the Key-stone XL pipeline.

While the state department did not judge the project, since other federal agencies will

have an opportunity to review the draft and public comments will be welcomed, the EIS concluded that “approval or denial of the pro-posed project is unlikely to have a substantial impact on the rate of development in the oil sands or on the amount of heavy crude oil re-fined in the Gulf coast area.”

The draft also said that “TransCanada’s Keystone XL pipeline would have little effect on most resources along the project’s pro-posed route if the company takes certain miti-gation measures.”

On 22 January, Nebraska’s governor Dave Heineman announced the approval of a re-vised route for the Keystone XL pipeline. With that hurdle cleared, the next step is the review from the state department.

The Obama administration’s decision is not expected until about mid-year.

Meanwhile, Enterprise Products and part-ner Enbridge completed the expansion of the 500 mile Seaway crude oil pipeline from Cushing, Oklahoma, to the US Gulf Coast in January this year. The expansion al-lowed capacity to increase from 150,000 bbl/day to 400,000 bbl/day.

In addition to the pipeline that transports crude oil from Cushing to the Gulf Coast, the Seaway system includes a terminal and distri-bution network originating in Texas City, Texas,

Shan

nonp

atric

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“Instead of alleviating the glut at Cushing, we may just be exchanging one glut for another”phIl FlyNN Senior market analyst at Price Futures Group

ECS_250313_024-027 25 14/3/13 15:06:05


AFPM SHALE INFRASTRUCTURE

the increase of natural gas liquids (nGL) production has created a massive oversupply situation in the Us, one that has caused prices to fall dra-matically year on year.

aFPM’s cooper says that if the Us can keep ethane abun-dant, it will remain more com-petitive with other countries. “But it will take a while to build up infrastructure to get the pro-panes and butanes to petro-chemical facilities. Build-up in capacity is different than a grassroots plant,” says cooper.

ethane is certainly abundant right now, so much so that some processors have resorted to ethane rejection, where it is left in the natural gas stream and used to heat homes and businesses. OneOK Partners, a natural gas processing com-pany, had to revise its 2013 operating income outlook based on lower expected nGL volumes because of “antici-pated widespread and pro-longed ethane rejection”.

the company said ethane rejection will be commonplace in 2013, adding that it has heard estimates that ethane rejection volumes are between 150,000 and 175,000 bbl/day. “We believe the ethane rejec-tion number is higher, based upon what we’ve seen from mid-continent and rockies plants connected to our nGL sys-tems,” says OneOK president terry spencer. “We are currently experiencing over 90,000 bbl/day of ethane rejection across our nGL systems and expect it to remain at those levels for much of this year.”

however, he says they ex-pect full ethane recovery during most of 2014 and 2015. “as we move through 2016 into 2017, we anticipate an under-supplied position as ethane demand will increase when these cracker expansions and new worldclass petrochemical facilities are completed.”

those facilities are projected to add 700,000 bbl/day of de-

mand to the market, he adds.however, William Waldheim, a director for DcP Midstream, says ethane rejection is not as widespread as people think.

“the ethane environment is going to be oversupplied... but i think... it’s really that the ethane has been rejected in the disad-vantaged areas, which is Wyoming, the Bakken, in those types of areas,” he argues. those areas do not have the infrastructure, such as pipe-lines, to profitably extract ethane and transport it to the right places.

“so i would generally say that we won’t be affected nec-essarily by ethane rejection. and i just remind everybody that the ethane component of the barrel is only about 10% of its value. We really are looking for a recovery in the price of propane with these export terminals that will be starting as we speak. and actually this summer, with increased propane exports, we would expect propane to begin to move to higher levels, which actually should help the price of ethane as well.”

two companies, enterprise Partners and targa, have an-nounced plans to expand pro-pane export facilities, and Vitol along with conocoPhillips are considering building ports to handle propane exports. Propane is currently oversup-plied in the Gulf coast, as a result of last year’s mild winter and increased production. accordingly, spot prices have been much lower.

in fact, some chemical com-

panies have decided to take advantage of the low price and crack propane instead of ethane.

analysts say the amount of propane being cracked today is at record levels, although ethane continues to be the feedstock of choice for most petrochemical producers.

aJ teague, chief operating officer of enterprise Products, says once the expansion of its export terminal is complete, propane prices should strength-en. “Propane is enjoying a bet-ter winter than last year, and its relative weakness, i believe, is a reflection at least in part of the delay in our export expansion,” teague says.

“the 40m bbl we exported last year will grow to over 60m bbl this year.” in 2012, enterprise debottlenecked its existing export facility to add 100,000 bbl/day of capacity. Once the current expansion project is complete, capacity will increase by up to 3.5m bbl/month, bringing the total capac-ity to 7.5m bbl/month.

“the other thing that i think ultimately helps ethane to some extent is that propane compet-ing with ethane and the crack-ers, because of the warm winter we had in the last year primarily, you’re having a little stronger winter this year. When that ex-port terminal comes up, we’re going to be exporting quite a lot more propane,” teague argues. “so i think it will have the ten-dency to pull propane out of that competition with ethane and the crackers.” ■

www.icis.com

their positions, as the regulatory US De-partment of Energy (DOE) is expected to renew its consideration of pending LNG export licenc-es. Industrial consumers, primarily led by US manufacturing heavyweight Dow Chemical, have also become more vocal in supporting their stance to protect domestic natural gas prices. Dow Chemical opposes unchecked ap-provals of LNG exports and throws caution on the existing regulatory procedure.

Meanwhile, the Center for LNG, the US LNG industry’s main trade organisation, and the American Petroleum Institute, have stepped up advocacy efforts to back approvals for LNG exports. More than 20 export projects have sought export licences from the US De-partment of Energy (DOE). Nearly all the pro-posals are seeking to export to countries out-side free-trade agreements with the US, to nations such as Japan, China and India, which are major LNG consumers.

However, the DOE has halted approvals of any new LNG export licences for these coun-tries since granting the first non-free-trade-agreement licence to US-based project devel-oper Cheniere, which is adapting its existing Sabine Pass import terminal in Cameron Par-ish, Louisiana, to create an 18m tonne/year liq-uefaction facility.

Although the backlog of pending projects now totals more than 29bn cubic feet (bcf)/day of potential exports, most industry analysts esti-mate US LNG capacity will see expansion to between 6-8bcf/day by 2020, given the high bar-riers of capital costs and commercial realisation of lique faction facilities.

A recent assumption by investment bank Goldman Sachs puts this estimate at about 6.76bcf/day of liquefaction capacity to be built between 2016 and 2020. “However, we high-light that potential demand growth in the next 10 years, particularly from Asia, is likely to once again tighten spot markets, creating the necessary conditions to accommodate some (but not all) of the large liquefaction projects currently being proposed in North America,” according to a 19 February analysts note.

Yet some believe that exporting shale resources is not the best way to capitalise on the value of all that oil and gas. At a recent hearing in front of the US Senate Energy and Natural Resources Committee, Dow Chemical CEO Andrew Liveris expressed his concern that large-scale expansion of US LNG exports

NGLs AnnA MAtherne & bobbie clArk hOUstOn

CurreNt oversuppLy wiLL Not Last for LoNG

Propane is enjoying a better winter than last year

“the question before usis not whether we have theenergy we need to grow andprosper. we do”JaCk Gerard President of the American Petroleum Institute

sara

h ac

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ECS_250313_024-027 26 20/3/13 18:54:15


could combine with broader electric utility use of gas, an increasing role for natural gas as a transportation fuel and expanding drill-ing regulations to effectively kill the golden goose by driving domestic natural gas prices ever higher.

“Dow supports expanded exports and trade,” Liveris said. “But we also believe it is crucial that DOE have the information and analysis necessary to properly apply the Natu-ral Gas Act requirement that exports be con-sistent with the public interest.” He urged Congress to ensure that DOE’s LNG export-permitting process be opened to wider com-ment by the full range of industries that de-pend on natural gas as a fuel or feedstock.

But Jack Gerard, president of the American Petroleum Institute (API), argues that in addi-tion to driving a domestic manufacturing ren-aissance, the new availability of natural gas po-sitions the US as a global energy superpower. “LNG exports will create thousands of US jobs, generate billions of dollars in revenue, improve our trade deficit and spur major investment in infrastructure, which will strengthen our ener-gy security,” he said in his testimony. “The question before us is not whether we have the

energy we need to grow and prosper. We do,” Gerard said, adding: “The question is whether we have the political wisdom and foresight to create a national energy policy that harnesses our great potential as an energy superpower.”

renaissance discussionsAndrew Gellman, the head of chemical engi-neering for Carnegie Mellon University in Pitts-burgh, Pennsylvania, says the real way to gain full value from shale gas is to keep it in the US to use as feedstock for chemical production. “If we ship it out we’ll have to buy the chemicals back from whomever gets it,” he adds. “It’s clear that we want to keep it here and try to process it.”

Gellman and Carnegie University have teamed up with the AFPM to deliver a series of discussions entitled the “Manufacturing Ren-aissance Series,” that will focus on the return of manufacturing to the US as a result of increased shale production. The first of these discussions took place on 10 January in Pittsburgh, Penn-sylvania, at Carnegie Mellon.

At that meeting, they brainstormed the major issues associated with establishing a significant chemical manufacturing industry based on shale gas. Each issue will be addressed more

deeply at upcoming meetings. The next one is set for 4 April in Pittsburgh. As of press time, the topic had not yet been decided. Possible topics that will be addressed include infastruc-ture, research and innovation, education and workforce development, the environment, public policy and financing. But the export of shale resources was definitely a hot topic at the most recent event.

“I think there’ll be some real tension between those who are in the business of exporting versus those in the business of adding value,” Gellman says. “That tension is certainly going to be there.” Further complicating matters is the fact that many companies only a few years ago built ter-minals to accept natural gas imports. Then the price of natural gas and oil went through the roof and vast stores of untapped resources were suddenly profitable.“Now that we are no longer in a position to im-port natural gas, all those terminals are just white elephants, not doing anything,” Gellman says. “If there is an opportunity for those com-panies to use the same terminals to export natu-ral gas, they will certainly want to do that.” ■

Additional reporting by ICIS editors Ruth Liao and Joe Kamalick

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ECS_250313_024-027 27 14/3/13 12:54:19


AFPM OLEFINS/POLYMERS

michelle klump & john dietrich houston

US olefins and polymers markets are facing pressures from uncertain end-use markets, rather than high feedstock prices

Where will all the new output go?

The US olefins market seems to have its feedstock issues largely sorted out, leaving the evolution of end-market demand as its biggest concern.

With a spate of ethane crackers scheduled for construction in the coming years, using cheap shale gas as feedstock, market players expect ethylene costs to go down and margins to increase. Propylene supply is expected to be bolstered by construction of several pro-pane dehydrogenation (PDH) units, creating a cheap supply of on-purpose material. How-ever, cheap feedstocks are no guarantee of strong future sales.

“At the end of the day, 6bn lb (2.7m tonnes) of propylene derivatives have to be exported,” says Dan Lippe, president of Petral Consulting Company. “It’s the same thing for ethylene, only more so.”

Announcements by market players have projected that an additional 10m tonnes/year of ethylene capacity will be started up in the US by 2017.

Lippe argues that the US ethylene cost structure must change in order for down-stream derivatives such as polyethylene (PE) and polyvinyl chloride (PVC) to flourish on the export market. “The industry is basing its costs on the very highest-cost basis of pro-duction, using naphtha,” Lippe says. “That has to change.”

Another consultant notes that the key issue remains what US PE and PVC prices are rela-tive to overseas prices, rather than ethylene. “Right now, the ethylene guys are making all the margins because supply is tight,” the con-sultant says. “Once we get all this new ethyl-ene, the margins will shift downstream.”

For 2012, export sales of PE accounted for roughly 17-22% of total sales for the year, ac-cording to the American Chemistry Council (ACC). By the end of the decade, the share of US PE production going into exports could rise to as high as 42%, according to Laurence

Alexander, an analyst with the banking group Jefferies.

That potential growth in the US export market is what is fuelling capacity expansion talk in North America. While much of the talk has centred on the ethylene market, there have been a few announcements in the PE arena. ExxonMobil, Chevron Phillips Chemi-cal, Dow Chemical, Formosa Plastics and Shell Chemicals have each announced at least tentative plans to build PE units downstream of proposed crackers or cracker expansions.

There is even talk of a start-up company – Appalachian Resins – which has announced plans to build a 500m lb/year PE plant at an undisclosed location south of Wheeling, West Virginia. Details about investors for the proposed plant have not been released.

“There are some of those that are pretty

well going to happen,” says one market par-ticipant, referring to projects such as Chevron Phillips’ and ExxonMobil’s, which are further along in the planning process. “The other ones are a little more tenuous.”

One producer adds that the increase in ex-port demand will lead to more stable pricing in the future, with fewer swings up and down. The producer says that dynamic would also take away some of the power of North Ameri-can buyers. “It will be a seller’s market,” the producer warned.

However, another producer is more scepti-cal of the improved export market for the US, adding that even as the US adds capacity, other countries are adding capacity as well. There is no guarantee that the global market will buy the excess US material, says the producer.

Another risk is the possibility of exports of liquefied natural gas, adds the producer. “That has kind of reared its ugly head,” the producer says, adding that it could have a negative ef-fect on feedstock pricing in the US and on “that advantage that everybody is betting on over here.”

on-purpose propylene boomA similar trend will be key for propylene and its derivatives, mostly in the polypropylene (PP) market. Thanks to the expected cost ad-vantages of PDH technology, at least seven new units have been announced with start-up dates between 2015 and 2018. At least 3m tonnes/year of new propylene capacity is ex-pected, and most of the projections have an additional 6m tonnes/year coming out of the US market.

Most of that new capacity will have to be sold as PP or acrylonitrile (ACN). Exports of Exports of polyolefins from the US are set to rise sharply

Boro

uge

ECS_250313_028-030 28 14/3/13 14:47:47


For the full year of 2012, high density pol-yethylene (HDPE) saw sales growth of about 2.2%, low density polyethylene (LDPE) saw sales growth of less than 1%, while linear low density polyethylene (LLDPE) saw a sales decline of around 1.7%, according to resin statistics from the American Chemistry Council (ACC).

domestic pick up in sight?The 2012 growth rates are close to the US GDP growth of 1.5% for 2012. One producer says it expects a similar alignment in 2013, with pos-sible improvement as the US economy im-proves. “Domestic demand hasn’t grown a whole lot in the last 10 years, but the domestic market should be better this year, I think, be-cause the economy is marginally better than it was last year.”

The automotive sector, which is not current-ly a huge demand pull for the PE market, may become more of a factor in 2013, according to one producer. Another area of growth for the industry could be shrink and stretch film, for which demand will improve as the construc-tion market improves, the producer says.

However, the real future growth for the US PE market is expected to come from export demand, particularly as low cost feedstocks

cumene derivatives will likely be driven more by the US benzene market rather than the pro-pylene market.

“We have three years to gear up to sell 6bn lb/year that we aren’t selling,” Lippe says.

The future health of the PP industry re-mains in question, with market participants split on the effect that the announced PDH units will have on the PP market. Jim Gal-logly, CEO of LyondellBasell, said during a company conference call that he is sceptical that everything that has been announced will be built. “We’ll see if all of those projects happen,” Gallogly said. “I’m a bit more scep-tical, the most on this propane advantage. It’s very, very strong right now, but as you know, propane, unlike ethylene, can be put on a boat. And over time, there will be more pro-pane export here in the United States.”

Other producers are convinced that PDH units will change the market, creating more propylene which will result in capacity ex-pansion in the PP market. “PP will begin to be like PE – you will approach the lower produc-er cost structure, and then you will begin to see PP decouple from propylene,” the pro-ducer argues. “You will have globally com-petitive pricing.”

Domestically, ethylene margins remain

strong, owing to continued cheap ethane costs and high spot prices. Through the end of February, US spot ethylene trades were averaging 62.80 cents/lb in 2013, up from an average of 61.07 cents/lb through the same period a year ago.

The higher ethylene spot prices pushed margins on ethane-based spot material to a near-record high of 60.03 cents/lb for the week ended 28 January 2013. Since then, margins have dipped to 54.95 cents/lb at the start of March on improved supply from several cracker restarts.

Downstream, PE prices are following a sim-ilar trend as in 2012, with increases in the first half of the year and expectations for prices to retreat in the second half, following the com-pletion of several cracker turnarounds.

With a similar pricing pattern, market partici-pants are also expecting a similar rate of growth in the market for 2013 as was seen in 2012.

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“At the end of the day, 6bn lb of propylene derivatives have to be exported”dAn LippePresident, Petral Consulting Company

Stretch and shrink wrap film are two prime areas for domestic growth for PE

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ECS_250313_028-030 29 14/3/13 13:10:12


AFPM OLEFINS/POLYMERS

The US butadiene (BD) mar-ket is facing demand issues, which are outweighing supply concerns. US BD contract prices have fallen to 84 cents/lb ($1,852/tonne) in March, down from year-ago levels of $1.45/lb.

The 42% drop in contract values has been largely driven by weak demand from the key styrene butadiene rubber (SBR) market. Although most SBR goes into automotive tyres, and US automotive sales have been strong in 2013, sales of replacement tyres have fallen drastically.

Replacement tyre sales are the key driver of SBR, rather than new automotive sales. Sources say the fall in replace-ment tyres can be attributed to strong sales of new cars re-placing older ones that would need new tyres, as well as weak economic conditions.

US 2013 sales of light vehi-cles and trucks are at 2,235,352 units through February, up by 8.4% year on year from 2,062,722 units.

The weakness in the US domestic market has pushed players’ eyes toward Asian

rubber and tyre markets. “The price increase in March was not unexpected,” says one market source. But given the high BD inventories following the layoff for the Chinese Lunar New Year, “it’s hard to get ultra bullish about any fur-ther increases in BD prices going forward”.

Another market participant says that the key for BD prices in Asia going forward will be how derivatives such as buta-diene rubber SBR respond.

“Unless we see some de-mand pull, it’s probably going to be difficult for BD to get a whole lot higher,” the market participant says.

Another source adds: “We’re watching the Asian market very carefully to see if there’s real demand from the rubber producers.”

There’s also concern that Asian producers could cut production even further if BD prices rise further.

In the downstream market for acrylonitrile butadiene sty-rene (ABS) copolymer, demand has been steady to strong to start 2013, sources say.

Most of the strength has

come from an expected re-bound in the US construction market, as consumer electron-ics demand has been steady at best.

however, the increase in demand from the ABS market is not expected to be able to overcome its smaller sales volumes compared with SBR, keeping US BD demand soft for the first half of 2013.

On the supply side, market sources say the continuing switch at US crackers to lighter feeds is a long-term issue, but short-term supply is balanced because of the weak demand.

According to consulting firm Jacobs Consulting, January BD production was 256m lb (116,000 tonnes), up by 2% year on year from 251m lb.

however, imports of BD into the US fell by 20% year on year, according to the US International Trade Commission (ITC).

Imports in 2012 totalled 590,036 tonnes, down from 734,788 tonnes a year ago. Most of the fall came from dropping imports from Colombia, Iraq, Algeria and from Canada. ■

butadiene John Dietrich & MArk YoSt hOUSTON

uS butadiene market facing weaker demand and tighter Supply

continue to give US producers a cost ad-vantage, sources say. Domestic propylene contract prices appear to be falling gradually after hitting a 20-month high in February 2013 on tight supply.

Several cracker outages and an unplanned 23-day turnaround at PetroLogistics’ PDH unit tightened supply considerably, pushing Feb-ruary PGP contracts to settle at 79 cents/lb.

Contracts were expected to fall in March by 5-6 cents/lb, as demand weakened because of high inventories downstream. Supply is ex-pected to be balanced to tight for the rest of the first half of the year, as cracker production is limited by lighter feeds and US refineries keep operating rates below 90%.

The low operating rates and tight propylene inventories have also kept RGP spot prices high and at a narrower premium to PGP.

PGP premiums over RGP have fallen to an average of 2.97 cents/lb for the first nine weeks of 2013, compared with premiums of 7.31 cents/lb for the same time period a year ago.

In the polypropylene (PP) market, feedstock pricing volatility has resulted in weak de-mand in the first quarter, with prices rising by 21 cents/lb, or nearly 31%, in the first two months of the year.

In addition to the feedstock increases, PP producers were able to add a penny margin so far in 2013, with at least one producer switch-ing many of its contracts away from monomer-based pricing to an index-based pricing.

While market participants had expected PP pricing to be more stable in 2013, the pricing trend so far for the year is following a very similar pattern to 2012, when prices rose by 38% in the first three months of the year.

In 2012, the PP market saw a sales growth of less than 1%, according to data from the ACC. Domestic sales improved by more than 1%, while exports fell by 11% for the year, ac-cording to the ACC.

At least one producer says it expects slight-ly better sales growth in 2013, adding that it expects to see around 2-3% growth for the year. Growth has been strong in injection moulding applications, as well as in com-pounding and the automotive sector.

“Automotive sales are booming and manu-facturing is beginning to swing back to the US, so you will have a huge increase on the de-mand side,” one producer says. “But right now, prices are too high.” ■

replacement tyre sales have been weak in the US, impacting SBr demand

“by the end of the decade, the share of uS pe production going into exports could rise to as high as 42%”laurence alexanderAnalyst, Jefferies

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ECS_250313_028-030 30 14/3/13 13:10:33

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ECS_250313_031 31 15/3/13 16:29:21


AFPM tAlent And recruitMent

cynthia challener verMont

North America’s petrochemicals industry is in an expansionary mood, but will it find enough of the right people to fulfil its plans, or is the ‘brain drain’ imminent?

the hunt is on for talented workers

resources within the group of already retired resources will still be an important aspect going forward, Dickson believes companies will need to extend the retirement age for those workers that would otherwise be retiring soon, or perhaps retain them on a part-time basis.

“Regardless of the specific strategies, com-panies definitely need to develop a new model for managing this aspect of the human resource equation,” Heiser asserts.

Even with new strategies however, there will still not be enough people to fill the gap of workers needed. As the experienced people retire, others are promoted to take their place, and the layers of employees at the lower level become thinner, according to Andy Talking-ton, managing director, global chemicals and crop science with executive re-cruiting firm Korn Ferry Inter-national.

Filling these positions is al-ready difficult, without having to meet the needs of new shale gas-driven projects.

First, the increasing emphasis on sustaina-bility has led to the need to save energy and water and minimise resource consumption, which often requires more complex produc-tion systems that in turn require a higher level of skill to operate, according to Heiser.

Second is the regulatory environment. “Most US policy has been in the area of safety and the environment, and not on building de-mand. That puts the country at a disadvan-tage compared to many emerging regions, where extensive investments are being made in education and economic development,”

Access to cheap domestic natural gas produced from shale deposits has made investment in new petro-chemical projects in North America

attractive for the first time in decades. The various projects announced will require high-ly skilled workers for the initial construction phase as well as the continued maintenance and operation of these facilities.

Such expansion is exciting for the industry, but comes at a time when a large number of industry employees are now within five to 10 years of retirement. In addition, many of these projects will be located in areas that lack an existing infrastructure and a pool of appropri-ately trained workers.

A negative perception of the chemical in-dustry among the public in general, and among newly graduated students in particu-lar, also continues to plague the sector, which will be competing for available talent with many other growing industries.

Petrochemical firms must, therefore, de-velop and begin implementing creative strate-gies to address their human resource needs.

“The chemical industry, particularly in the US and Europe, has been facing the prospect of a potential brain drain for several years,” notes Duane Dickson, a principal at Deloitte Consulting. “The baby boomers that were hired in the 1970s are all within 5–10 years of retirement. That means a larger number of ex-perienced people will soon be leaving these companies,” Dickson adds.

valuing experienceThe loss of company knowledge is a critical issue. “It takes a good 5–10 years of working to really gain an understanding of the industry,” Craig Heiser, managing director of talent and organisation for the energy/chemicals indus-tries with Accenture, observes. “Companies need to look at different opportunities for mak-ing creative use of experienced employees.”

In the past, companies have often hired-back retired workers as contractors, which ends up costing more. While finding contract

Dickson, also the global chemicals sector leader at Deloitte Touche Tohmatsu, says.

Thirdly, the petrochemical industry will be looking for people in the same pool of talent accessed by the upstream energy sector, downstream fine and specialty chemical in-dustries, and other related and unrelated mar-kets such as biotechnology, healthcare, com-puters and microelectronics.

in the wrong placeThe energy sector, which is developing cheap natural gas feedstock, is already struggling to find skilled workers, from welders to truck-drivers to engineers, particularly in areas that lack existing infrastructure.

Many of the planned new crackers will suf-fer the same difficulties, because they will be located outside the typical petrochemical pro-duction areas – such as in Pennsylvania and North Dakota – where there is no infrastruc-ture or pool of skilled labour.

“The current generation does not seem to be that interested in moving around to new places, and those that are interested have al-ready taken advantage of opportunities to work in other countries in the Middle East and Asia where the petrochemical industry has been expanding and has been a further drain on resources,” Dickson says.

He further notes that the shale gas environ-ment is entrepreneurial and thus constantly changing, and the need to be able to respond quickly only intensifies the staffing issues.

Competition for newly graduated engineers and other technically trained people is also fierce. About 20 years ago, according to Phillip R Westmoreland, president of the American Institute of Chemical Engineers (AIChE), 65% of US chemical engineering graduates were entering the fuels and chemicals industry. Ten years later, that number had fallen to 39%.

“Now the demand for chemical engineers is growing as increasing numbers of manu-facturing industries become more reliant on the properties of chemicals. They aren’t just assembling things any more, but forming and processing new materials,” Westmore-land comments.

“the industry faces a big challenge in overcoming current public perceptions and conveying that chemistry is fundamental to life”andy talkington Managing director, global chemicals and crop science, Korn Ferry International

ECS_250313_032-033 32 14/3/13 13:14:54


The result has been a dramatic rise in the number of students graduating with a degree in chemical engineering – up from a low of 4,900 graduates per year in 2008 to 6,500 per year for the last two years, notes AIChE exec-utive director June Wispelwey.

Unfortunately for the petrochemical indus-try, according to Talkington, these new gradu-ates prefer many of the newer sectors, for ex-ample biotechnology and microelectronics.

“Despite the fact that the chemical indus-try has good, relatively well-paying jobs, its attractiveness compared to other technolo-gy-based businesses is currently very low. The industry faces a big challenge in over-coming public perceptions and conveying that chemistry is fundamental to life,” Talk-ington remarks.

Trade groups, individual companies and academic institutions are responding and at-tempting to tell the story in a more effective manner. The National Academy of Engi-neers, for example, has launched a “Chang-ing the Conversation” initiative highlighting how engineers are helping to solve major glo-bal challenges, according to Wispelwey.

“Many new graduates want to be part of these solutions. Talking to them about how the chemical industry can help address water quality, sustainable energy, waste manage-ment, healthcare, and other worldwide is-sues is much more inviting,” she says.

In addition, the initiative also places a great deal of emphasis on describing engi-neering opportunities and careers in new ways that are more welcoming to women and other groups presently under-represented in the Science, Technology, Engineering and Mathematics (STEM) workforce.

internships are positiveThere are many programmes designed to en-gage and educate children in grades K-12 and at college level about chemistry and its im-portance. Heiser also sees the growing number of internship programmes as a posi-tive step forward.

However, he cautions, “companies need to invest in these programmes and be sure to give these high school and college students an amazing and challenging experience so that they are excited about coming back.”

Engineers are just one of many types of skilled workers that will be in short supply. Most large companies will be able to fill man-agerial positions – either by promoting from within, repatriating expats, or poaching from one another – and can hire retired workers as contractors for the build phase. However, they will struggle to find reliable, safe people to operate and maintain the new facilities once they are built, according to Heiser.

Talkington adds that: “It takes a specialised skill-set to run and maintain a chemical plant, including trades people, pipe-fitters, mill-wrights, [and] technicians, etc, and they all need to be located physically near the plant – particularly in places like Pennsylvania and West Virginia. These people will all need to be brought in.”

global talent search To find these people, many companies will have to look globally, not only by bringing back expats, but also by using foreign nation-als. “In the short term, I expect the chemical industry to join with IT and software indus-tries in pushing for a better visa programme for temporary workers,” Talkington says. “The US must participate in the global talent market; if we don’t develop the skilled work-ers we need here, then we will have to import them. How successful the industry will be, though, will depend on the policy-makers.”

Petrochemical firms are also finding it nec-essary to increase the attractiveness of com-pensation packages in terms of both wages and benefits. “We also hear increasingly that companies looking to hire talented, ambitious people that are eager to be effective and pro-ductive, are finding that work-life balance is-sues are very important. Those firms that are innovative and support employees in this re-spect will be in an advantageous position,” Talkington observes.

Overall, petrochemical companies that are creative about managing all aspects of their human resources effort will have better luck attracting and retaining the skilled workforce they need, in order to take advantage of the opportunities afforded to the industry through the development of shale gas.

They should consider all avenues, Dickson says: retaining skilled workers for longer; focusing on the technical education of young people; increasing the attractiveness of the industry for new graduates; accessing the glo-bal talent pool; and offering innovative com-pensation packages.

“There is no simple solution to the [human] resources issue that the industry faces. However, if companies are going to find ways to manage these issues, they must be planning today in order to be prepared for the time when the situation will be most acute,” Heiser concludes. ■

Finding qualified people to interview may well become the hardest part of recruitment

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ECS_250313_032-033 33 14/3/13 13:15:26


AFPM list oF suites

By invitation or appointment onlyAir Liquide GHS SuitesAkzo Nobel Functional Chemicals – Ethyleneamines GHS

Suite Albemarle MRC SuiteAlberta’s Industrial Heartland Association MRC SuiteAllChem Industrial Chemicals Group MRC SuiteAOC WES Camino RealArizona Chemical Company GHS SuiteArkema – Functional Additives MRC SuiteArkema - Direct Procurement & Thiochemicals division

GHS SuiteArkema – Acrylics Business GHS SuiteAsahi Kasei Chemicals MRC SuitesAscend Performance Materials MRC SuiteAscend Performance Materials – Chemicals WES SuiteAtlantic Methanol HPR SuiteAxiall (formerly Georgia Gulf) GHS SuiteAxiall (formerly PPG) SAM SuiteBASF MRC SuiteBASF WES Goraz RoomBASF, Catalysts Division SAM Salon A SAM SuiteBASF Polyamide and Intermediates GHS SuiteBASF MRC SuiteBP Petrochemicals MRC Conf. Room 12 SuiteBraskem GHS Travis DBrenntag Latin America SAM Salon DCalumet Specialty Products GHS SuiteCelanese MRC Conf. Rooms 15,16Conf. Suite 514Chemtura – AO/UV GHS SuiteChemtura – Procurement GHS SuiteClariant MRC Conf. Rooms 1, 8Cornerstone Chemical Co. MRC SuiteCroda SAM SuiteDelamine GHS SuiteDeltech GHS SuiteDow Chemical The WES Navarro BallroomEastman Chemical MRC Conf. Rooms 17, 18, 19Eastman Chemical WES La Babia RoomElekeiroz GHS SuiteEmerald Performance Materials MRC SuiteEnterprise Products Operating SAM Salon BEvonik Cyro MRC SuiteExxonMobil Chemical HPR MezzanineExxonMobil Chemical – Intermediates HPR

Hacienda 1, Hacienda 2 and El Mirador A EastFlint Hills Resources SAM Valero RoomGantrade MRC Conf. Rooms 13,14 SuiteGE Water & Process Technologies MRC SuiteGeorgia-Pacific Chemicals GHS SuiteGrace Davison GHS Presidio CGreat Lakes Solutions/Chemtura Organometallics GHS

SuiteGrupo Idesa MRC SuiteHollyFrontier Lubricants and Specialty Products GHS

Travis CHuntsman MRC Salon CSuites ICIS Consulting SAM Suite

IHS Chemical MRC Conf. Room 11Indorama Ventures GHS SuiteINEOS Nitriles GHS SuiteINEOS Olefins & Polymers USA MRC SuiteINEOS Oligomers MRC SuitesINEOS Oxide WES SuiteINEOS Phenol WES Zapata RoomINTEGRA SAM SuiteInternational Process Plants – IPP MRC SuiteINVISTA MRC Conf. Room 10KH Neochem MRC SuiteKoch Methanol GHS SuiteKolmar Americas MRC SuiteLANXESS MRC SuiteLANXESS SAM Riverview RoomLBC Tank Terminals GHS SuiteLG International SAM Milam RoomLinde Group MRC SuiteLucite International-Procurement MRC SuiteLyondellBasell Industries MRC SuitesM. Cassab Group MRC SuiteMarubeni SAM Bowie & Travis Rooms SuiteMEGlobal GHS SuitesMerisol MRC SuiteMethanex WES Villa RoomMitsui & Co GHS Bonham A,B,C,D and E Rooms SuitesOiltanking MRC SuiteOlin Chlor Alkali Products MRC SuiteOswaldo Cruz Quimica MRC SuiteOXEA MRC Room 544 Conf. Room 4MRC Salon E (25/3 pm only)Oxiteno MRC SuitePotash Sales (PCS Corp.) WES Lantana RoomPeter Cremer North America MRC SuitePetroLogistics GHS SuitePraxair GHS SuiteProcter & Gamble Chemicals MRC SuiteQuantiQ-IQ Solucoes & Quimica MRC SuiteSABIC MRC Suites SAM Bonham and Crockett RoomsSamsung C&T MRC SuitesSasol North America GHS SuiteSekisui Specialty Chemicals America GHS Bonham

E (3/26 only)SI Group MRC SuitesSK GC Americas SAM Salon FSojitz Corporation of America MRC SuiteSouth Hampton Resources GHS SuiteSouthern Chemical HPR SuiteStepan Company MRC SuiteSumitomo Corporation of America MRC Salon A and BSummit Petrochemical Trading GHS SuiteTotal Petrochemicals GHS SuitesToyota Tsusho America GHS Presidio BTPC Group MRC SuiteTrammochem, a division of Transammonia GHS Travis ATricon Energy MRC SuiteUBE Industries MRC SuiteUOP, A Honeywell Company MRC SuiteVopak SAM River Terrace RoomWilliams Olefins GHS Suite

Meeting and hospitality directory

Many companies hold meetings or host hospitality suites in conjunction with the IPC. This directory lists those companies that have requested to be included as of 14 February 2013.

Since the rooms and suites are used for many purposes, we have listed the companies according to function.

Check the daily event boards at the individual hotels for specific locations, dates and hours of operation.

Hotel directory GHS Grand Hyatt San Antonio600 E Market Street210 224 1234

HPR Hilton Palacio del Rio200 S Alamo210 222 1400

MRCMarriott Rivercenter101 Bowie210 223 1000

SAMMarriott Riverwalk889 E Market Street210 224 4555

WESWestin Riverwalk420 W Market Street210 224 6500

Hospitality – open to allArgus DeWitt SAM Salon EGTM/Panachem MRC SuiteICIS SAM Salon CIHS Chemical MRC Salon DOdfjell MRC Salon EPetrochem Wire/CME MRC AtriumPlatts MRC Conf. Room 7SABIC MRC Salon I (25/3 pm only)Tecnon OrbiChem MRC Suite

ECS_250313_034 34 14/3/13 13:17:17

Be a part of these important industry events.

Security ConferenceSan Antonio, TXApril 15 - 17

National Occupational & Process Safety ConferenceThe Woodlands, TXMay 14 - 15

Reliability & Maintenance Conference and ExhibitionOrlando, FLMay 21 - 24

Labor Relations /Human Resources ConferenceOrlando, FLMay 22 - 23

extendyour reach attend 2013 afpm meetings

Board of Directors MeetingCle Elum, WASeptember 8 - 10

Q&A and Technology ForumDallas, TXOctober 7 - 9

Environmental ConferenceNew Orleans, LAOctober 20 - 22

International Lubricants and Waxes MeetingHouston, TXNovember 14 - 15

Register at www.afpm.org

www.afpm.org

3365_AFPM_2013_IPC_ICIS_PRINTER.indd 1 2/19/13 4:57 PMECS_250313_303 303 15/3/13 12:18:57

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MARKET UPDATE:

Global polymers to face

heightened competition

The global commodity polymers market

continues to be under severe pressure

from challenges such as the European

debt crisis, slowing emerging market

growth and increased competition.

Despite these challenges, overall polymers

consumption is poised to grow at a

compounded annual growth rate (CAGR)


After the plunge in global consumption during the 2008-

2009 economic crisis, demand started to recover in the

following years. Yet, a full recovery to pre-crisis levels is

still far off in mature economies, and the industry entered

another diffcult period during 2011.

The worsening of the European debt crisis, volatility of

the capital markets and a faltering economy have all

destabilized confdence at a global level.

The cumulative global consumption of polyethylene

(PE), polypropylene (PP), polyvinyl chloride (PVC) and

polystyrene (PS) excluding expandable PS - in 2011 is

estimated at 178m tonnes or 4.5% over 2010 levels. The

largest increases were recorded by PVC at 6.2% and

linear low density PE (LLDPE) at 5.8%.

However, growth was hampered considerably on the

widespread slowdown of key end-markets, also in some

of the fastest-growing economies.

China Impact

China is the largest world market for each of these

polymers, accounting for 49m tonnes in 2011 or 27% of

global demand. China’s market recovered quickly after

2008, thanks to government economic stimulus measures

and incentives to boost consumption.

PE and PVC demand recorded consecutive double-digit

annual increases in 2009 and 2010. Overall Chinese

demand growth in 2011 is estimated at 5.6%, 5.4

percentage points lower than the 11.0% growth in 2010.

The government’s efforts to curb infation through

restrictive monetary policy resulted in a tight credit

market, which hurt investment and demand. Furthermore,

China’s exports of fnished and semi-fnished plastic

products had to cope with lower demand from recipient

markets, and with some loss of competitiveness due to

the stronger yuan.

The electronic and household appliances sectors in

China slowed down notably during the second and third

quarters of 2011 on weak domestic sales and exports

to traditional markets in the West. Later in the year,

shipments to fast-growing countries such as India and

Brazil also decelerated.

PS demand grew less in the manufacture of TVs,

computers and electronic accessories, which resulted

in a weak peak demand season. PE and PP performed

relatively better thanks particularly to the packaging

sector and agriculture applications.

But China’s automotive industry worsened overall with a

slight increase in the production of passenger cars, and a

decline in commercial vehicles, which principally impacted

PP consumption.

The domestic PVC market recorded another year of

substantial growth, but at a reduced pace. Government

policies aimed at limiting speculation in the housing

market and preventing a bubble, such as restrictions on

mortgages and pre-sales of homes, have cooled down the

property sector. This has impacted demand for PVC, and

high density PE (HDPE) to a lesser extent.

Remarkably, the proftability of the polymers sector in

China worsened on the mounting costs of energy and raw

materials and volatile downstream demand.

Major PP producers chose to reduce operations in mid-

2011 due to tight margins.

Many PVC operators reported small profits or losses

during most of the year. Also, margins over the

mber of the Ree

content of this


After the plunge in global cg the 2008-

over in the

s levels is

try entered

atility of

ve all

ene

) and

011 is

els. The

and

he

some

% of

er

sures

git

m

m

C

m

M

201

Many

durin

In the Ärst q

uarter of 20

12, the CFR

(cost &

freight) Jap

an naphtha

price has r

isen to its

highest leve

l since May

2011 suppo

rted by

strong dema

nd, tight sup

plies and str

ong

crude value

s.

In recent m

onths the n

aphtha mar

ket has mov

ed into a

steeper bac

kwardated s

tructure, wh

ich underlin

es demand

for prompt n

aphtha sup

plies from th

e petrochem

ical sector in

Asia amid in

creased op

erating rate

s at cracke

rs in Taiwan

and

full operatin

g rates at c

rackers in C

hina and So

uth Korea.

Supply for

regional car

goes loadin

g and arrivi

ng in the Är

st

half of April

continue to

be tight, wi

th record pr

emiums

paid by crac

ker operator

s such as S

outh Korea’s

Honam

Petrochem

ical, LG Che

m and Mala

ysia’s Titan

Chemicals.

© Copyrigh

t 2012 Reed

Business In

formation L

td. ICIS is a

member o

f the Reed E

lsevier plc g

roup.

ICIS accept

s no liabilit

y for comm

ercial decis

ions based

on the con

tent of this

report

The backw

ardated stru

cture could

ease movi

ng into the

next

few weeks

amid report

s of an incr

ease in arb

itrage cargo

es

into Asia fro

m the West

. There wer

e reports tha

t some

650,000 ton

nes of naph

tha were ex

pected to a

rrive in Asia

during April.

Crack spre

ads betwee

n April nap

htha and IC

E

Brent crude

futures wer

e strong, bu

t have move

d off highs

as market p

layers diges

ted news of

possible in

creased

spot availab

ility.

The Europe

an naphtha

cargo mark

et is subdue

d. With low

levels of bu

siness takin

g place, the

market has

lengthened

slightly, ren

dering it bal

anced too lo

ng. The arbi

trage to Asi

a

remains clo

sed, althoug

h some beli

eve it viable

for heavy

grades of n

aphtha to h

ead east.

The arbitrag

e to the US

is also shut.

Demand fr

om the

gasoline se

ctor is desc

ribed as me

diocre, while

interest from

the petroche

mical indus

try is also m

inimal, des

pite naphth

a

having a Än

ancial adva

ntage over

rival feedsto

ck propane.

A lack of ne

ar-term buy

ers in the U

S Gulf heav

y naphtha

market has

pushed diffe

rentials to a

deeper dis

count to

US Gulf sp

ot gasoline

in both the

gasoline se

ctor and the

petrochemic

al industry.

Energy and feedstocks:

Asia crackers ramp

up production,

boosting naphtha

Natural gas prices, front month

Source: ICI

S

Millions

US Henry H

ub, S/MMB

tu

Feb 2012

Feb 2011

50

2

100

7

70

4

80

5

0

6

60

3

UK NBP

US Henry H

ub

Global Naphtha prices

Source: ICI

S

$/tonne

$/bbl

Feb 2012

Mar 2011

800

70

1,200

130

1,000

100

1,100

115

00

85

Naphtha A

sia

Naphtha U

S

Naphtha E

uropeOil - W

est Texas

Intermediate

To book advertising in ICIS Chemical Business marketplace or for more

information contact:

Americas:Karen Yaniro on

+1 212 791 4251

email: [email protected]

Rest of the World:Thomas Iredale on

+44 20 8652 3812email: [email protected]

ICB_5x1 filler.indd 1 19/9/12 15:26:05

ICB_250313_037.indd 37 21/03/2013 15:04


For up-to-date information on more than 120 global commodities, visit:icis.com/about/price-reports

ASIA chemIcAl profIle

ASIA TIO2 PRICES

2,500

3,000

3,500

4,000

4,500

Mar2013

Mar2012

$/tonne, spot CFR Asia

Read all the latest news concerning titanium dioxide and a wide range of other commodity chemicals at icis.com/news

chrIStInA SIAntAr fIrSt ASIA chemIcAl profIle

USeSTitanium dioxide (TiO2) is mainly used as a white powder pigment because of its bright-ness and high refractive index. It is used in paints and coatings, including glazes and enamels, plastics, paper, inks, fibres, foods, pharmaceuticals and cosmetics.

As TiO2 is resistant to discolouration under ultraviolet light, it is often used in plastics and sunscreens. Another growing outlet is in photo catalysts, where it is used in applications such as light-emitting diodes, liquid crystal displays and electrodes for plasma displays.

SUpply/DemAnDThe TiO2 market in Asia has been oversup-plied since 2012 because of capacity expan-sions in the major China market and weak demand from downstream sectors.

China’s total import volume for 2012 is es-timated to be around 160,340 tonnes, down by about 30% from 228,600 tonnes in 2011. The decrease in import volume is attributed to capacity expansions in the country, which provided competitively priced local product for Chinese buyers to purchase instead.

From March 2012, prices in Asia plunged by approximately 28% year on year, accord-ing to ICIS data. Regional suppliers are trying to implement price hikes for the second quar-ter of 2013 but buyers are resistant. Demand for TiO2 in Asia was said to be slow as a result of the weak global economic situation.

Market sentiment in Asia’s TiO2 market is expected to remain bearish in the near term,

titanium dioxideCompany Location Capacity

Ishihara Sangyo Kaisha

Yokkaichi, Japan 155

DuPont Taiwan Kuan Yin, Taiwan 140

Henan Billions Chemicals

Jiaozuo, China 100

Luohe Xingmao Titanium Industry

Luohe, China 90

Sichuan Lomon Titanium Industry

Chengdu, China 80

Huntsman Tioxide Teluk Kalung, Malaysia 60

Sakai Chemical Industry

Osaka, Japan 60

Tayca Corp Okayama, Japan 60

Ishihara Sangyo Kaisha

Jurong, Singapore 54

Guangxi Jinlong Titanium Industry

Nanning, China 50

Huayuan Titanium Dioxide

Lanzhou, China 50

Shandong Dongjia Group

Zibo, China 45

Panzhihua Dongfang Titanium Industry

Panzhihua, China 40

The Kerala Miner-als and Metals

Sankaramangalam, India

40

NOTE: *Top 14 plants listed by capacity

ASIA tItAnIUm DIoxIDe cApAcIty* ’000 tonneS/yeAr

market participants said. Domestic prices in the major China market are softening as local producers lower their offers amid inventory pressures. This was despite the typical season-al demand peak period in downstream paints and coatings industry in March and April.

prIceSAsian TiO2 prices in the second quarter of 2013 are expected to be largely stable, accord-ing to most market participants. Some regional producers have announced price increases for the next quarter because of squeezed margins.

However, some sellers concede it may be dif-ficult to raise prices given the slow demand and lower prices in China’s domestic market. Com-petitively priced Chinese exports to other Asian regions are likely to weigh down on TiO2 prices.

Buying ideas are mostly at a rollover or a slight decrease from previous deals. Some buyers felt that TiO2 prices may have bot-tomed out following declines in TiO2 prices since the second quarter of the previous year.

In March 2013, Asian TiO2 prices are as-sessed at $2,700-3,150/tonne (€2,100-2,320/tonne) CFR Asia. China-origin material was available at $2,450-2,650/tonne CFR Asia.

technologyTiO2 is produced from either ilmenite, rutile or titanium slag. Titanium pigment is extracted by using either sulphuric acid (sulphate process) or chlorine (chloride route). The sulphate process employs simpler technology than the chloride route and can use lower-grade, cheaper ores. However, it generally has higher production costs and with acid treatment is more expensive to build than a chloride plant. But the latter may require the construction of a chlor-alkali unit.

The chloride route produces a purer product with a tighter range of particle size, but anatase pigments can only be produced by the sul-phate route.

oUtlookTiO2 prices in Asia have not increased since last year and prices may have finally hit the bottom, according to some market sources. Some sellers have already announced their intention of implementing price increments effective from the months of March and April.

Most sellers expect prices to recover in the near term, supported by improved demand in

March and April from the paints and coatings sector. Meanwhile, some market participants remain pessimistic, believing the bleak out-look for China’s TiO2 market may affect prices in other parts of Asia.

Prices in China’s domestic market are likely to soften in the coming months because of in-ventory pressures faced by some local produc-ers. Should prices in China’s domestic market come down, regional sellers would have dif-ficulty implementing price hikes for their ex-ports into China, sources said.

In Japan, domestic prices are likely to remain relatively flat in coming months as demand is slow and buyers would not agree to price hikes, sources said. At the same time, local sellers are not willing to compromise on lower prices be-cause of their already squeezed margins. ■

ICB_250313_038-303 38 21/3/13 16:12:35


europe chemical profile

EUROPE CAPRO PRICES

1,900

2,000

2,100

2,200

2,300

Feb2013

Mar2012

€/tonne, contract FD NWE

mark victory profile last published 22 November 2010

To keep track of the latest movements in chemical markets across the globe, subscribe to ICIS pricing reports at icis.com/pricing

usesCaprolactam (capro) is mainly used to make nylon 6 fibres and engineering plastics, which account for about 68% and 32% of global de-mand, respectively. Nylon 6 fibres are used extensively in textiles, carpets and industrial yarns, with tire-cord a large and growing mar-ket, especially in China.

Nylon resins are the basis of engineering plastics, used in electronic and electrical com-ponents and automobiles, and oriented polya-mide films used widely in food packaging.

techNologyMost capro is produced from cyclohexane (CX), but it can also be made from phenol or toluene. CX is oxidised to cyclohexanone, then reacted with hydroxylamine sulphate to cyclohexanone oxime, followed by a Beckman rearrangement to yield capro. But this route also produces large volumes of ammonium sulphate (AS) and work is focused on reducing or eliminating the AS co-product.

pricesFrom July 2011 to February 2013, capro contract prices fell by €230-290/tonne. In the same peri-od, the feedstock benzene contract price rose by €286/tonne, resulting in squeezed margins.

At the time of publication, March contract negotiations were ongoing. Several contract partners have already settled March prices at between a rollover and an increase of €14/tonne, with rises of €7-10/tonne frequently mentioned as representative.

caprolactamCompany Location Capacity

BASF Antwerp, Belgium 290

DSM Geleen, Netherlands 250

LANXESS Antwerp, Belgium 200

Kuibyshevazot Togliatti, Russia 180

BASF Ludwigshafen, Germany

170

Domo Caproleuna Leuna, Germany 160

Grodno Azot Grodno, Belarus 160

Kemerovo JSC Azot Kemerovo, Russia 160

Ube Engineering Plastics

Castellon, Spain 160

Zaklady Azotowe w Tarnowie-Moscicach (ZAT)

Tarnow, Poland 160

Electrkimyosanoat Chirchik, Uzbekistan 160

Zaklady Azotowe Pulawy (ZAP)

Pulawy, Poland 160

Azot Cherkassy Cherkassy, Ukraine 160

Shchekinoazot Shchekino, Russia 160

Spolana Neratovice, Czech Republic

160

NOTE: *Top 15 plants listed by capacity

europe capro capacity* ’000 toNNes/year

Price rises were attributed to a €14/tonne increase in the March upstream benzene con-tract price. Poor downstream margins and an inability to pass capro price rises into the downstream nylon 6 market have so far limit-ed March capro contract price increases.

supply/demaNdConsumption in the first quarter of 2013 has been estimated at 15% lower than in the same period in 2012. Although capro players said the first quarter in 2012 was a particularly strong year and not a good base for compari-son, they estimated Q1 2013 demand at up to 10% below average Q1 volumes.

Weak demand is the result of poor macroeco-nomic conditions, which have limited con-sumer purchasing power. However, demand differs sharply depending on end-use industry.

Premium automotive demand is approxi-mately 2-3% lower than in the same period in 2012. Premium auto consumption is being buoyed by exports to Asia resulting from up-ward social mobility.

On the other hand, non-premium automotive demand is up to 40% lower in 2013 year-to-date than for the same period in 2012. This is be-cause fewer non-premium autos are exported and poor macroeconomic conditions have re-duced consumer purchasing power in Europe.

Demand in the European polyamide chain is not expected to improve in the first half of 2013, and there may not be a peak season this year, many sources say. March typically sees the start of the fibre season and the approach of the peak season in automotives, but negative economic sentiment has meant consumption is showing no signs of an increase in these sectors.

outlookThe long-term outlook for European capro is un-certain. There is underlying growth in end-use markets from global megatrends such as light-weighting in automotive and upward social mo-bility in developing regions. However, major additional capacity in Asia may lead to material previously earmarked for export remaining in Europe – potentially causing oversupply.

One producer said demand in Europe is only enough to cover 30% of merchant mar-ket production in the region, and that, as a re-sult, additional capacity in Asia will require a large amount of consolidation in Europe.

There is uncertainty as to the impact of Asian capacity expansion on Europe because this will be limited until producers in the re-gion are able to manufacture capro for high-speed spinning applications. Opinion is di-vided on when this will happen, but some sources expect Asian producers to begin man-ufacturing capro for high-end applications within the next 1-2 years.

With a burgeoning middle class in develop-ing regions increasingly purchasing premium autos as status symbols, several sources ex-pect the gap between premium and non-pre-mium auto demand to grow in the next few years, leading to nylon 6 innovation being tar-geted at performance-specific polymers serv-ing the automotive industry.

Sources said it is becoming increasingly important to serve the right customers in the right region with the right end-use to weather the poor macroeconomic condi-tions in Europe. ■

ICB_250313_038-303 39 21/3/13 16:12:56

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