APIC '08: Record crude pressures Asia petchems

26 May 2008 05:06  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--Never in the history of petrochemicals has the industry had it so good. The period from late 2004 to 2007 was one of astounding profitability for Asia’s naphtha-cracker operators thanks to booming emerging markets and tremendous co-product credits.

But profitability has all but vanished as a result of record-high crude oil prices that drove naphtha to an all-time of $1,123/tonne CFR (cost and freight) Japan last week.

Most analysts are forecasting that crude will go even higher. Demand growth on a global basis is also falling and the new-capacity avalanche has just begun.                          

So the question on delegates’ lips as they arrive in Singapore for the eighth Asia Petrochemical Industry Conference (APIC)* might be: "Is history about to be made again – but this time for all the wrong reasons?"

Let’s pause for breath, though. The US might climb out of its downturn, or recession, by as early as next year and China’s economy could continue to grow at close to 10% per year.

For anyone who doesn’t panic, the prospects remain strong. China’s industrial revolution has only just begun, for example, and India’s per capita plastics consumption is a paltry 2.5kg as against 20-30kg in China.

However - and this should be a however with ten-foot high illuminated 3-D capital letters - it might not be as simple as waiting for the downturn to be over.

Many of the highest-cost producers might not survive the downturn, which could last to 2012 and beyond.

Those who stumble on thanks to generous shareholders, governments and/or banks, may still bleed money.

Middle East producers will dominate export markets because of their hugely-increased – and also diversified – capacities: the region is, for instance, becoming a major polypropylene (PP) player.

Marginal producers will have to focus almost solely on local markets, where they will face ferocious competition from low-cost imports and more efficient domestic competitors.

China will keep building capacity and running existing plants hard in order to reduce imports. The potential for coal-based olefin output is enormous.

So to the $64,000 question: Who will be the marginal players into the next decade?

Could economics change so much that moderately big, well-integrated producers with reasonable technologies shift a long way to the right of the cost curve?

No matter what your competitive position, you have to be worried about the environment.

Is the kind of growth we have seen in emerging markets sustainable, or will run-away climate change wreck the global economy?

Will legislators apply their own growth-brakes through a flurry of new laws restricting the production and consumption of chemicals?

APIC 2008 takes place from 27-28 May.

ICIS news and The Chemical Daily have produced an official 84-page, in-depth special publication on Asian petrochemicals for APIC
To discuss issues facing the chemical industry go to ICIS connect

By: John Richardson
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