OUTLOOK '08: Olefins supply to tighten on feed

27 December 2007 08:32  [Source: ICIS news]

By Steve Tan

SINGAPORE (ICIS news)--Asian naphtha crackers are bracing themselves for high feedstock costs and squeezed margins in 2008, while buyers are wary of tight olefins supplies, market sources said on Thursday.

Record high naphtha costs, touching $880/tonne CFR (cost and freight) Japan by end 2007, could be a harbinger of things to come next year as crude prices are not expected to soften anytime soon.

"We have scaled back operations with naphtha costs this high, it’s not worth running at full rates," a cracker operator in Thailand said, referring to production cutbacks of several percentage points.

Another cracker operator in Singapore has also explored the option of cutting ethylene exports in order to conserve costs, especially when spot ethylene prices are comparably soft.

This trend is expected to continue into next year, despite expectations of tighter spot supplies.

These cutbacks in production could reduce spot supplies next year as sellers become more cost-sensitive with expectations of thinner margins between spot ethylene and naphtha.

"We expect the first half of the year to be especially tight in Japan, due to the heavy shutdown schedule," said a Japanese producer. The number of shutdowns in Japan in 2008 are expected to increase by two to three compared to 2007, most of which will be conducted in the months of March till May.

Exports will be tight due to increased domestic demand in Japan and Korea, a Japanese trader added.

Despite increased capacity afforded by the expansion of South Korea's Lotte Daesan by 350,000 tonnes/year, a similar increase in downstream expansions could dent export availability.

On the other hand, another Japanese trader expects plentiful supply of ethylene, especially from the Middle East.

Regular exports from Iran, Qatar and Saudi Arabia will continue, contributing over ten cargoes a month to both southeast and northeast Asia, market sources said.

The propylene market, however, may not see such injections of deep-sea cargoes to alleviate the expected tight supply situation in Asia.

With record-high propylene prices in both Europe and US, no cargoes from these regions were expected to enter Asia for at least the first half of next year, said a trader.

Strong demand and high prices from Europe could also siphon off the majority of the output from the new Jubail Chevron Philips pentane cracker unit, leaving no surplus for Asia.

The plant was expected to add about 140,000 tonnes/year of propylene to the market when it starts up in the first quarter next year.

Meanwhile, Japanese traders, such as Mitsui & Co, Marubeni Corp. and Sumitomo Corp., will also continue to play a key role in the region's olefins trade as they time charter the vessels needed to ship the product.

Name	Capacity tonne/year	Period – 2008
Idemitsu Kosan, Tokuyama	672,000	Sep-Oct
Maruzen Petrochemicals, Chiba	520,000	May-June
Mitsubishi Chemicals, Kashima 1	375,000	May-June
Mitsubishi Chemicals, Mizushima	496,000	May-June
Mitsui Chemicals, Osaka	450,000	TBC
Nippon Oil Corp., Kawasaki	440,000	Aug-Sep
Sanyo Petrochemical, Mizushima	470,000	Mar-Apr
Tosoh, Yokkaichi	527,000	Mar-Apr
KPIC, S Korea	460,000	Apr or Oct
Lotte Daesan, S Korea	650,000	Apr
Formosa No 3, Taiwan	1.2m	45 days Sep
CPC no 4, Taiwan	385,000	End Oct
CPC no 5, Taiwan	550,000	Mid Aug
PTT Chems (NPC), Thailand	460,000	40-days June-July
PTT Chems (TOC no 2), Thailand	300,000	60 days – Nov-Dec
PCS no 1	475,000	38 days mid Jul-end Aug
EMSB	400,000	Feb-Mar
Titan Chemical	TBC	TBC

 

($1 = €0.69)

 

Kew Jia Hui contributed to this article

By: Steve Tan
+65 6780 4359

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