FOCUS: Asia braces for tight olefins supply in 2H

20 June 2006 07:15  [Source: ICIS news]

By Steve Tan

SHANGHAI (ICIS news)--Multi-year high Asian olefins prices look set to continue into the second half, as players scramble to cover the production lost due to 11 planned cracker shutdowns in the region, market sources said.

Asia is currently halfway through one of the heaviest turnaround schedules ever, with a total of 21-22 cracker shutdowns slated this year excluding China. Only 10 have so far been completed.

Asia, excluding China, Australia and India, has a total of 44 crackers which produce ethylene from naphtha and ethane feedstocks.

Starting from August, three crackers in Northeast Asia are to shut for a minimum of 30 days each (see table). The crackers in South Korea and Japan have arranged product swaps with other producers to cover for the shortfall in production.

For example, SK Corp’s No 2 cracker shutdown on 20 August will result in as much as a 20,000 tonnes shortfall of ethylene, which will mostly be covered via swap arrangements and spot purchases.

On the other hand, Taiwan’s Chinese Petroleum Corp.’s (CPC) No 5 cracker shutdown on 4 August is expected to have a significant impact on the spot markets. Taiwan is structurally very short of material and buyers would have to turn to imports if they want to increase operating rates of downstream plants.

In response, spot prices have shown a dramatic increase in offer levels, which at $1,200/tonne CFR Taiwan are flirting with two-year highs.

Adding pressure to the tight situation, the opaque shutdown schedules of nine Chinese crackers this year will also influence domestic olefins supply in China, which could drive end users to seek ethylene and propylene imports.

Shanghai Petrochemicals and Beijing Yanshan have delayed or cancelled their shutdowns, leaving only seven crackers slated to shut down this year, most of which are occurring in June. Only two remain on the schedule for July onwards - Qilu Petrochemicals and Guangzhou Petrochemicals.

As a possible sign of things to come, spot cargoes for July ethylene are scarce, especially in Southeast Asia as most integrated producers are building stocks ahead of the turnarounds.

Producers have very little incentive to release ethylene stocks into the spot markets as derivative markets such as polyethylene (PE), styrene monomer (SM) and mono ethylene glycol (MEG) are performing relatively well in terms of price, traders said.

In Southeast Asia, four cracker shutdowns are slated for the second half of the year, continuing a very heavy turnaround schedule in a region that has been squeezed of all available supply due to the start up of Thai Glycol’s new 300,000 tonnes/year MEG plant in June and the restart of PT Peni in Indonesia, the largest non-integrated PE producer in the Asia with a capacity of 450,000 tonnes/year.

“If you are importing C2 you are not having a good time,” said a regional trader, who added that some plants would make more selling ethylene rather than polyethylene if prices are above $1,200/tonne FOB Southeast Asia.

The last confirmed price in the region was at $1,195/tonne FOB Indonesia last week for end-July loading, while discussions were ongoing for an end July parcel at $1,210-1,230/tonne FOB this week.

He added that most producers were building stocks “as you don’t want to be short in a market selling at $1,280/tonne CFR,” referring to the highest offer levels currently in the spot market.

If successfully sold at this level, prices would be close to breaking a previous 10-year high seen in September 2004.

Several expansions and new crackers due to come on stream during the second half of the year will help ease tight supply.

In China, Maoming Petrochemicals will add another 640,000 tonnes/year of ethylene capacity in September, while Lanzhou Petrochemicals will add 450,000 tonnes/year of ethylene by the year end.

Of the 11 cracker shutdowns mentioned, four are slated for expansions. South Korea’s Yeochun Naphtha Cracking Centre (YNCC) is poised to become Asia’s largest exporter of olefins by the year end as its expanded 350,000 tonnes/year of ethylene and 200,000 tonnes/year of propylene are all for export.

 “It’s a very tough question to answer,” said a Korean propylene buyer when asked about his expectations of the propylene market for the rest of the year. He pointed to volatile crude oil prices and uncertainty with regards to downstream polypropylene (PP) demand as being the main factors affecting propylene.

He added that the markets would also have to take into account the additional supplies from new capacities which have come on stream this year, for example on-purpose propylene plants like Nippon Oil’s metathesis unit.

Cracker	Capacity (kt/yr)	Shutdown date
PCS No 2	615	mid July-end Aug
Taiwan’s CPC No 5	550	4 Aug - 40 days
Tonen Chemicals	515	20 Aug-30 Sep
SK Corp No 2	650	20 Aug - 35 days
Idemitsu	620	2H Sep - 40 days
TOC/PTT Chem No 1	385	mid Sep - 30-40 days
Formosa No 1	700	mid Sep - 35-40 days
TPI	380	mid Oct - 30-40 days
YNCC No 1	500	11 Oct - 29 Nov
Chandra Asri	520	Nov-Dec
CPC No 4	385	early Nov-mid Dec 45 days

By: Steve Tan
+65 6780 4359

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