ANALYSIS:Formosa units in dark on cracker delay

08 February 2007 03:12  [Source: ICIS news]

By Steve Tan and Gina Myung

SINGAPORE (ICIS news)--Formosa Group’s downstream companies expect their new plants to start up on schedule from late April onwards despite an earlier ICIS news report that its cracker in Mailiao, Taiwan, will be delayed until end-2007, company sources said late on Wednesday.

But some were also bracing for a possible delay, keeping a close watch on developments in the spot market which could go into a tailspin if they end up picking up large volumes of ethylene and propylene.

Formosa Petrochemical Corp’s (FPCC) new No 3 cracker, Asia’s largest, will supply 1.2m tonnes of ethylene, and 850,000 tonnes/year of propylene, to various downstream plants within the group in Mailiao and Ningbo in eastern China.

The main contractor CTCI had earlier said that problems with land shortage could delay the start-up of the cracker until November or December, almost a year behind the original schedule. FPCC officials declined to comment on the prospects of a delay.

Most sources at the various Formosa downstream plants contacted this week said that they had received no official word of a delay and believe that their estimated phased start-up schedules from end April through July would be unchanged.

“It will proceed as scheduled and will start up at the end of April,” said a FPCC company source on its 176,000 tonne/year butadiene (BD) extraction unit.

Formosa Chemicals and Fibre Corps’s (FCFC) new 600,000 tonne/year styrene monomer (SM) unit will also be started up in mid-2007 as planned, one company source said. There was no indication from Formosa that its new cracker had been delayed and hence the SM unit would come online as scheduled, he added.

Taiwanese players in the downstream styrenic plastics sector had also not received information on FCFC’s new SM unit being delayed. FCFC’s current SM operations include a 250,000 tonne/year No 1 and a 350,000 tonne/year No 2 unit at Mailiao.

Other officials from FCFC and its sister company Nan Ya Plastics, also said the derivative phenol-acetone and bisphenol-A (BPA) units would start-up as scheduled.

FCFC has two phenol-acetone units in Mailiao, which can each produce 200,000 tonnes/year of phenol and 125,000 tonnes/year of acetone.

FCFC plans to cut exports and allocate the phenol and acetone feedstock for Nan Ya’s fourth 130,000 tonne/year BPA line when the facility starts up around April. Nan Ya currently operates three BPA lines, with a combined production capacity of 290,000 tonnes/year.

In downstream polymer operations, a Formosa Plastics Corp (FPC) source echoed the views that the cracker would start-up as scheduled but noted that its 450,000 tonne/year plant in east China will not be able to start up as scheduled in June if the cracker was delayed.

Ethylene supply from the new cracker would be essential as Formosa Petrochemical Corp (FPCC) will not be able to ramp up production at its downstream polyethylene (PE) facilities at Mailiao to full capacity, if the No.3 cracker start-up is delayed, a second FPCC source said.

The facilities have been running as low as 80% since being debottlenecked a few years ago due to a shortage of on-site feedstock ethylene, he said.

The facilities include a 350,000 tonne/year high density PE (HDPE) line, a 264,000 tonne/year linear low density PE unit and a 240,000 tonne/year low density PE/ethylene vinyl acetate (LDPE/EVA) plant and would be looking forward to a much needed boost in ethylene supply from the new cracker.

Nonetheless, some buyers were bracing themselves for a possible delay in cracker start-up.

Sources close to Nan Ya Plastics said the company’s 700,000 tonne/year monoethylene glycol (MEG) plant downstream  could run into further delays. The new plant’s startup date was already pushed back twice last year – first from early 2007 to April, and then finally to the middle of the year.

“It’s difficult to gauge now, as we don’t know if we should get ethylene from other sources, or simply delay the startup of the MEG plant,” said one of the sources. When pressed, another source acknowledged that “a slight delay” would be the most likely outcome but declined to elaborate.

Olefin traders were keeping their ears to the ground for latest developments as a delay in the cracker start-up would result in a significant shift in the supply/demand balance in the region.

FPCC would also have to delay the start-up of the olefins conversion unit which is able to produce 250,000 tonne/year propylene, originally due to start-up with the cracker.

“Big quantities of propylene were expected to be exported starting from June/July and this would bring propylene demand-supply close to balance in northeast Asia, but if it is delayed, northeast Asia would see a net shortage in propylene supply,” a regional trader said.

Agreeing, a Japanese trader expressed concerns over the possible delay, saying “the delay in FPCC’s cracker start-up will impact several things, and it would affect the Japanese producers who are exporting cargoes into the regional countries.”

“Buyers especially in the Ningbo area have not secured feedstock as they were expecting FPCC to start-up but the delay may cause buyers to panic and purchase cargoes in bulk quantities, causing propylene prices to surge,” a buyer in Taiwan said.

He went on to say that the acrylic ester (AE) and PP plants in Ningbo would require at least 50,000 tonnes of propylene every month but the delay would cause an imbalance of feedstock in the region and buyers would have to scramble for spot cargoes.

Elsewhere in southeast Asia, traders agreed that the delay would cause a setback to the propylene market but said that it would not affect prices to a great extent as consumers would still have to consider downstream PP prices when purchasing their feedstock.

The possible delay could tighten ethylene supply availability in the region, traders said.

“About 600,000 tonnes of ethylene will disappear from the market. So Formosa could end up buying more spot material,” a regional ethylene trader said.

The change in scenario could prompt the company to turn into a net importer for the time being, instead of a net exporter until such time the cracker can successfully start, he added.

Clive Ong, Nurul Darni, Chow Bee Lin, Helen Yan, Peh Soo Hwee, and Chan Jingyi contributed to this article


By: Steve Tan
+65 6780 4359



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