25 June 2007 00:00 [Source: ICB]
It was never going to take long for global propylene markets to feel the impact of Asia's newest and largest cracker. The long and the short of it is that it's already taken its toll on pricing.
After a series of expansions in the region, another 600,000 tonnes/year of propylene flooded the market in May, when Formosa Petrochemical Corporation (FPCC) brought its facility on stream in Mailiao, Taiwan.
Traders say the influx of material, combined with murmurings of tightness and high prices in Europe, has flung the westbound arbitrage window open for the first time in more than two years.
Asian spot prices have plummeted since the cracker started operating, and they now look likely to fall below $1,000/tonne (€745/tonne) cost and freight (CFR) northeast Asia.
Over in Europe, improved supply has also triggered a drop in spot values, taking them to the low-€900s/tonne, and below.
Production issues at Total's 800,000 tonne/year polypropylene (PP) unit in Feluy, Belgium, and news that Basell's cracker in Wesseling, Germany, has come back up from maintenance earlier than expected, have added some temporary length to the propylene market and impacted demand.
Further, FPCC has a surplus of some 15,000 tonnes/month of propylene for export from its Asian cracker, so observers say that these Asia-Europe shipments will continue in the short term. These could be seen until Formosa's new 450,000 tonne/year PP unit comes on stream in China during the fourth quarter, and soaks up the excess propylene.
Nevertheless, many players concur that the latest price drop in Europe is unlikely to greatly influence third-quarter contract discussions, which are now under way.
Targeted increases of around €50/tonne have been heard among producers, which would take prices to €900/tonne FD (free delivered) NWE (northwest Europe).
Although buyers argue that such a hike is excessive, high naphtha costs and expectations that propylene will tighten again when upcoming cracker outages take hold mean that increases seem to be inevitable.
Against this backdrop, it appears that the only other certainty is that these Asian expansions will continue to add uncertainty to propylene markets worldwide for some time to come.
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