Global olefins now at turning point – ChemSystems

29 July 2008 22:54  [Source: ICIS news]

HOUSTON (ICIS news)--The buoyant run that olefins producers have enjoyed over most of the decade will likely come to an end in 2008, London-based consultancy ChemSystems said on Tuesday.

But the industry would not hit its trough until 2011-2012, ChemSystems predicted, a later timeframe than some other analysts have forecast.

Olefins producers have enjoyed operating rates at close to maximum levels since 2004, ChemSystems said in distributed excerpts from a new study. 

This year "now seems certain to be the turning point, with major new plants already on stream, and the economic outlook looking decidedly weaker", it said.   

Margins have been disappearing as lengthening markets prevent producers from passing through rising feedstock costs, the firm said.

That factor will be compounded by new capacity entering production in the period 2008-2012, mainly in the Middle East and Asia, it said.

The Middle East capacity will take advantage of low-cost feedstock, while new Asian capacity will have the advantage of proximity to market, refinery developments and fixed costs. 

The hardest-hit producers in the coming trough will be naphtha-based producers in Europe and Asia, which until recently enjoyed high operating rates and good export demand, ChemSystems said.

The outlook for global olefins consumption growth is uneven but still positive, it said.

Propylene demand growth is expected to slow down to 4.5%/year over the 2007-2015 period, from an average 5.5%/year over 1995-2007. Polypropylene accounted for 62% of propylene output in 2007.

By contrast, global consumption of ethylene - rising at 4.2%/year since 1995 - and butadiene is forecast to grow at higher rates over the next 10 years than has been seen in the last decade, the firm said, without giving details. 

"The fundamental driver for this transformation will be the increased domestic consumption in developing economies," it said.

The study also predicted a major shift in trade patterns for derivatives.

"Polyethylene expansions in the Middle East are projected to exceed the import requirements in China and the wider Asian market," it said.

"Regions such as North America and western Europe will therefore have to absorb a substantial increase in net imports."  

Likewise, a significant change in polypropylene trade positions is expected as the  Middle East emerges as a major exporter of polypropylene, one of the faster-growing commodity polymers.

"Operating rates among less competitive producers in western countries will be depressed, with Asian producers protected to some extent by soaring regional demand," ChemSystems said.

Global butadiene markets have been tight due to inadequate investment in new capacity, the firm said. Rapid expansion of the automotive manufacturing industry in Asia, and in particular China, has been one of the major drivers for butadiene.

Major steam cracker projects in Asia will result in increased availability of mixed C4s for butadiene production, and that will result in a reduction in operating rates towards 2011, the study said.

For more on propylene, ethylene and butadiene ICIS chemical intelligence
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By: Stephen Burns
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