US EG arbitrage may drop on new mideast supply

03 April 2008 23:41  [Source: ICIS news]

HOUSTON (ICIS news)--Arbitrage opportunities for US ethylene glycol (EG) market participants could fall as new mideast production comes online, a trader said on Thursday.

“We’ve been saying for a few years now that new plants in the mideast would come online soon, adding supply to the global market while diminishing arbitrage opportunities for US exporters. I think that time is almost at hand,” the trader said.

“While new production facilities will likely come online over the next year or two, their effect on the market might not be felt for a while longer due to expected start-up difficulties at any new facility,” a supplier said.

Moreover, planned and unplanned outages could offset the increased supply.

Of more immediate concern was the status of SABIC’s Al-Jubail unit in Saudi Arabia, which was taken down in August following unexpected problems with the air separation unit.

Jubail United Petrochemical, a subsidiary of SABIC, has two 750,000 tonne/year EG units at Al-Jubail.

The problems at Al-Jubail contributed to a global shortage of EG through the remainder of the year, sending prices into a steep climb that finally subsided earlier this year.

The April benchmark for US fibre-grade EG (EGF) and industrial-grade (EGI) product is 65 cents/lb ($1,433/tonne), according to global chemical market intelligence service ICIS pricing. That was down from the mid-70s cents/lb in January.

“Some think SABIC’s new air separation unit is working well, and the plant is running at optimum rates and is building inventory," the trader said. "Others think there are still some issues to be resolved before SABIC’s affected unit returns to normal production rates.”

Even some of those who think SABIC is operating at normal rates said it could take a few more weeks, or even a month or two, before the product actually reaches the market, the trader said.

“We think SABIC’s likely influence on the market has been overstated,” an EG producer said. “The return of their Al-Jubail facility will undoubtedly have an influence on the market, but we don’t expect to see a flood of product that will cause prices to crater.”

At the same time, the trader said an expected tightening of global ethylene supplies in the coming weeks could provide price support.

Polimeri Europa’s 380,000 tonne/year ethylene cracker in Dunkerque, France, was taken down on 19 March following a fire. It was expected to be brought up in the first part of April.

In Asia, Sinopec subsidiary Yangzi Petrochemical has scheduled a 15-day turnaround at its 400,000-tonne/year No 1 cracker, with a 33-day turnaround scheduled for a 200,000 tonne/year facility, beginning on 9 April.

US MEG suppliers include Equistar, Huntsman, Old World, SABIC and Shell.

For more on SABIC's Al-Jubail plant, visit ICIS plants and projects 

For more on EG visit ICIS chemical intelligence

By: Gene Lockard
1 713 525 2653

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