FocusAsian crackers face bleak 2009

11 November 2008 05:05  [Source: ICIS news]

By Peh Soo Hwee

 

SINGAPORE (ICIS news)--Asian naphtha crackers’ operating rates may remain low going into 2009 as poor demand and more capacities coming on stream in the Middle East combined to paint a gloomy outlook for operators, olefin producers and traders said on Tuesday.

 

“I think it’s impossible to get normal operations next year,” said a South Korean producer, who is currently running its crackers at below 80% in line with most regional crackers. Other cracker operators echoed this sentiment as they felt the prospect of a strong rebound in the markets was increasingly remote.

 

The sharp fall in demand since August for petrochemical raw materials came as a rude shock for most regional producers after prices had hit a peak in July. Amid the high levels of stocks most producers were keeping, regional cracker operators had little choice but to slash operating rates in an effort to stem the free fall in olefins and their derivative prices. 

 

Spot ethylene prices slumped to a six-year low of $380-400/tonne CFR (cost and freight) northeast Asia last week, losing nearly 80% of its value in a matter of four months from a 16-year high of above $1,700/tonne CFR NE Asia in early July, according to global chemical market intelligence service ICIS pricing.

 

The onset of new Middle Eastern crackers from Saudi Arabia, Kuwait and Qatar are expected to keep the market extremely competitive for Asian crackers.

 

“With the Middle-east crackers coming on stream, I don’t see any bright future,” said a Japan-based olefins trader.

 

An estimated nine crackers are expected to start up in 2009, with half of them from the Middle East. In Saudi Arabia, Rabigh Refining and Petrochemical Co (PetroRabigh)’s 1.25m tonne/year cracker is expected to come on stream by the first quarter of 2009, together with Saudi Yanbu National Petrochemical Co’s (Yansab) 1.3 m tonne/year unit.

 

In the second quarter of 2009, Eastern Petrochemical Co (Sharq) is expected to start up its 1.3 m tonne/year cracker in Al Jubail, Saudi Arabia, while Qatar Petrochemical Co is scheduled to bring on stream its joint venture cracker of the same capacity in Ras Laffan during this period.

 

From Saudi Arabia alone, some 4.9m tonnes/year of new ethylene capacity was expected to come on stream in 2008, but most have been delayed until 2009.

 

Market participants said there would likely be further consolidation among naphtha-based crackers in Asia particularly as their competitive edge was increasingly eroded by the start up of more ethane-based cracker operators in the Middle East.

 

“We are likely to see the phasing out of smaller crackers in 2009,” said a northeast Asian cracker operator.

 

Poor economics has already forced some Asian operators to shut their crackers. Among the handful that have been taken offline include smaller facilities such as the 190,000 tonne/year cracker in Ulsan operated by South Korea’s SK Energy as well as Shanghai Petrochemical’s 150,000 tonne/year cracker in China.

 

Adding to the oversupply situation, the relatively light cracker maintenance schedule in 2009 (see table below) could also cap gains for ethylene prices, traders said. Naphtha crackers in Asia are typically shut for maintenance every two to three years.

 

Most market players believe that any recovery in the petrochemicals markets would have to be demand-driven and there seems to be some light at the end of the tunnel.

 

Governments in Asia have recently unveiled a slew of measures to shore up their economies following concerns of a global economic recession due to the credit crunch in the US and Europe.

 

On Monday, China announced a massive yuan (CNY) 4,000bn ($585.65bn) economic stimulus package to spur domestic consumption but this was met with a cool response from the country’s petrochemical industry due to weak demand fundamentals.

 

Company Name	Capacity (tonnes/year)	Location	Shutdown dates
Mitsubishi Chemical	375,000	Kashima, Japan	May-Jun
Mitsubishi Chemical	450,000	Mizushima, Japan	May-Jun
Mitsubishi Chemical	476,000	Kashima, Japan	Jul-Aug
Mitsui Chemicals	617,000	Ichihara, Japan	Mid-Jul-mid-Aug
Formosa Petrochemical Corp	700,000	Mailiao, Taiwan	Sep-Oct
Yeocheon Naphtha Cracking Centre	400,000	Yeocheon, South Korea	Oct-Nov
Chinese Petrochemical Corp	230,000	Linyuan, Taiwan	Nov (40-45 days)

 

($1=CNY6.83)

 

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By: Peh Soo Hwee
+65 6780 4359

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